OBLIGATIONS AND CONTRACTS

HOMEWORK
JD1 – 302
DIMALIBOT,JESSAMYN M.
 PART 2
CASE DIGEST
 Marquez vs Elisan Credit Corporation

GR 194642, April 6, 2015

Facts:

Marquez obtained from Elisan Credit Corporation a loan payable in weekly installments and
subject to annual interest with monthly penalties and attorney’s in case of nonpayment.  A chattel
mortgage was also executed stipulating that “the motor vehicle shall stand as a security for all other
obligations of every kind already incurred or which hereafter may be incurred”.  The payment of that loan
was acknowledged by both parties.

Subsequently, Marquez obtained another loan evidenced by a promissory note with the same
terms and conditions as the first loan.  When the second loan matured, there still remained an unpaid
balance. Marquez requested the creditor to pay the unpaid balance by daily installments until the loan is
paid; the creditor agreed.  Thus, several months after the maturity of the loan, Marquez had already paid
a total amount which is greater than the amount of the principal.

Despite such, the creditor filed a complaint for foreclosure of the CM on the ground that Marquez
allegedly failed to pay the principal of the second loan despite demand. It was also prayed that the unpaid
balance plus accrued penalties and interests be paid because, allegedly, Marquez’ failure to pay upon
maturity triggered the imposition of monthly penalties and attorney’s fees.

Marquez, citing Art 1176 and 1235 of the Civil Code, insists that his daily payments should be
deemed to have been credited against the principal, as the official receipts issued by the creditor were
silent with respect to the payment of interest and penalties.

Issue:

1:  W/N the creditor waived the payment of the interest

2:  W/N the daily payments made by the debtor be applied to the interest

3:  W/N an order for foreclosure is proper

Ruling:

1.No.  The fact that the official receipts did not indicate whether the payments were made for the
principal or the interest does not prove that the creditor waived the interest.  There is no presumption of
waiver of interest without any evidence showing that the creditor accepted the daily instruments as
payments for the principal.

2.Yes.  Notwithstanding the fact it was not indicated in the receipts whether the payments were
applied to the principal or the interest, such failure should not be taken against the creditor.   Under  Article
1253 of the Civil Code, if the debt produces interest, payment of the principal shall not be deemed to have
been made until the interests have been covered.  Thus, the creditor in this case has a right to credit the
payments to the interest first.

3.No.  Foreclosure in this case is without legal and factual basis because the chattel mortgage
was already extinguished when the obligation under the first loan was duly paid.

A CM can only cover obligations existing at the time the mortgage is constituted. For a CM  to cover debts
yet to be contracted, a fresh chattel mortgage may be executed or the old contract be amended
conformably to the form prescribed by the CM Law. Here, since there was no showing that a new
agreement was executed, the security can no longer apply to the second loan. The chattel mortgage was
already extinguished because being merely an accessory in nature, it cannot exist independently of the
principal obligation.

Although a promise expressed in a chattel mortgage to include debts that are yet to be contracted can be
a binding commitment that can be compelled upon, the security itself, however, does not come into
existence or arise until after a chattel mortgage agreement covering the newly contracted debt is
executed either by concluding a fresh chattel mortgage or by amending the old contract conformably with
the form prescribed by the Chattel Mortgage Law.

Refusal on the part of the borrower to execute the agreement so as to cover the after-incurred obligation
can constitute an act of default on the part of the borrower of the financing agreement whereon the
promise is written, but the remedy of foreclosure can only cover the debts extant at the time of
constitution and during the life of the chattel mortgage sought to be foreclosed.
 Yulim Vs International Exchange Bank

GR 203133, February 18, 2015

Facts:

IBank granted Yulim a credit facility in the form of an Omnibus Loan Line for P5,000,000.00, as
evidenced by a Credit Agreement which was secured by a Chattel Mortgage over Yulim's inventories in its
merchandise warehouse. As further guarantee, the partners, namely, James, Jonathan and Almerick,
executed a Continuing Surety Agreement in favor of IBank. Yulim defaulted in the payment of its
obligations.

IBank sent demand letters to Yulim but without success. IBank then filed a Complaint for Sum of
Money with Replevin against Yulim and its sureties, which was subsequently granted. On August 8, 2002,
the Court granted the application for a writ of replevin However, the items seized from Yulim's warehouse
were worth only P140,000.00, not P500,000.00 as the petitioners have insisted.

The petitioners allege that their loan had been fully paid after they assigned to iBank their
Condominium Unit. They also invoked Article 1255 of the Civil Code, on payment by cession.

RTC Makati: Yulim alone to pay iBank. Dismissed the complaint against the sureties stating that there
was no iota of evidence that the loan proceeds benefited their families.

CA: The so-called assignment of its condominium unit to iBank was nothing but a mere temporary
arrangement to provide security for its loan pending the subsequent execution of a real estate mortgage.
Regardless of whether the loan benefited the family of the individual petitioners, they signed as sureties,
and iBank sought to enforce the loan obligation against them as sureties of Yulim.

Issue: Whether or Not the petitioners Yulim are liable to pay IBank

Ruling:

YES.

In the Continuing Surety Agreement, the petitioners agreed to be "jointly and severally with the
PRINCIPAL [Yulim], hereby unconditionally and irrevocably guarantee full and complete payment when
due, whether at stated maturity, by acceleration, or otherwise, of any and all credit accommodations that
have been granted" to Yulim by iBank, including interest, fees, penalty and other charges. Under Article
2047 (2) of the Civil Code, these words are said to describe a contract of suretyship

If a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter
3, Title I of this Book shall be observed. In such case the contract is called a suretyship.
 In a contract of suretyship, one lends his credit by joining in the principal debtor's obligation so as
to render himself directly and primarily responsible with him without reference to the solvency of the
principal.

A surety is considered in law as being the same party as the debtor in relation to whatever is adjudged
touching the obligation of the latter, and their liabilities are interwoven as to be inseparable. And it is well
settled that when the obligor or obligors undertake to be "jointly and severally" liable, it means that the
obligation is solidary, as in this case.
 Sps. Roberto And Adelaida Pen Vs. Sps. Santos And Linda Julian
GR No. 160408, January 11, 2016
Facts:
On April 9, 1986, the appellees (the Julians) obtained a P60,000.00 loan from appellant Adelaida
Pen. On May 23, 1986 and on the (sic) May 27, 1986, they were again extended loans in the amounts of
P50,000.00 and PI0,000.00, respectively by appellant Adelaida. The... initial interests were deducted by
appellant Adelaida, (1) P3,600.00 from the P60,000.00 loan; (2) P2,400.00 from the P50,000.00 loan; and
(3) P600.00 from the PI0,000.00 loan. Two (2) promissory notes were executed by the appellees in favor
of appellant Adelaida to evidence the... foregoing loans, one dated April 9, 1986 and payable on June 15,
1986 for the P60,000.00 loan and another dated May 22, 1986 payable on July 22, 1986 for the
P50,000.00 loan. Both loans were charged interest at 6% per month. As security, on May 23, 1986, the
appellees executed a
Real Estate Mortgage over their property covered by TCT No. 327733 registered under the name
of appellee Santos Julian, Jr. The owner's duplicate of TCT No. 327733 was delivered to the appellants.
Appellant's version of the subsequent events run as follows: When the loans became due and
demandable, appellees failed to pay despite several demands. As such, appellant Adelaida decided to
institute foreclosure proceedings. However, she was prevailed upon by appellee Linda not... to foreclose
the property because of the cost of litigation and since it would cause her embarrassment as the
proceedings will be announced in public places at the City Hall, where she has many friends. Instead,
appellee Linda offered their mortgaged property as payment in kind.
After the ocular inspection, the parties agreed to have the property valued at P70,000.00.
Thereafter, on October 22, 1986 appellee executed a two (2) page Deed of Sale duly signed by her on
the left margin and over her printed name. After the execution of the Deed of Sale,... appellant Pen paid
the capital gains tax and the required real property tax. Title to the property was transferred to the
appellants by the issuance of TCT No. 364880 on July 17, 1987. A reconstituted title was also issued to
the appellants on July 09, 1994 when the Quezon City
Register of Deeds was burned (sic).
On July 1989, appellants allege that appellee Linda offered to repurchase the property to which
the former agreed at the repurchase price of P436,115.00 payable in cash on July 31, 1989. The
appellees failed to repurchase on the agreed date. On February 1990, appellees again... offered to
repurchase the property for the same amount, but they still failed to repurchase. On June 28, 1990,
another offer was made to repurchase the property for the same amount. Appellee Linda offered to pay
P100,000.00 in cash as sign of good faith. The offer was rejected... by appellant Adelaida. The latter held
the money only for safekeeping upon the pleading of appellee Linda. Upon the agreement of the parties,
the amount of P100,000.00 was deducted from the balance of the appellees' indebtedness, so that as of
October 15, 1997, their unpaid... balance amounted to P319,065.00. Appellants allege that instead of
paying [the] said balance, the appellees instituted on September 8, 1994 the civil complaint and filed an
adverse claim and lis pendens which were annotated at the back of the title to the property.
On the other hand, the appellees aver the following: At the time the mortgage was executed, they
were likewise required by the appellant Adelaida to sign a one (1) page document purportedly an
"Absolute Deed of Sale". Said document did not contain any consideration, and was "undated, unfilled
and unnotarized". They allege that their total payments amounted to P115,400.00 and that their last
payment was on June 28, 1990 in the amount of P100,000.00.
In December 1992, appellee Linda Julian offered to pay appellant Adelaida the amount of
PI50,000.00. The latter refused to accept the offer and demanded that she be paid the amount of
P250,000.00. Unable to meet the demand, appellee Linda desisted from the offer and requested... that
she be shown the land title which she conveyed to the appellee Adelaida, but the latter refused. Upon
verification with the Registry of Deeds of Quezon City, she was informed that the title to the mortgaged
property had already been registered in the name of appellee
Adelaida under TCT No. 364880, and that the transfer was entered on July 17, 1987. A reconstituted title,
TCT No. RT-45272 (364880), also appeared on file in the Registry of Deeds replacing TCT No. 364880.
By reason of the foregoing discoveries, appellee filed an Affidavit of Adverse Claim on January
1993. Counsel for the appellees, on August 12, 1994, formally demanded the reconveyance of the title
and/or the property to them, but the appellants refused. In the process of... obtaining other documents;
the appellees also discovered that the appellants have obtained several Declarations of Real Property,
and a Deed of Sale consisting of two (2) pages which was notarized by one Atty. Cesar Ching. Said
document indicates a consideration of P70,000.00... for the lot, and was made to appear as having been
executed on October 22, 1986. On September 8, 1994, appellees filed a suit for the Cancellation of Sale,
Cancellation of Title issued to the appellants; Recovery of Possession; Damages with Prayer for
Preliminary Injunction. The... complaint alleged that appellant Adelaida, through obvious bad faith,
maliciously typed, unilaterally filled up, and caused to be notarized the Deed of Sale earlier signed by
appellee Julian, and used this spurious deed of sale as the vehicle for her fraudulent transfer unto...
herself the parcel of land covered by TCT No. 327733.[3]
Judgment of the RTC
In its judgment rendered on August 30, 1999,[4] the RTC ruled in favor of the respondents. According
greater credence to the version of the respondents on the true nature of their transaction, the trial court
concluded that they had not agreed on the... consideration for the sale at the time they signed the deed of
sale; that in the absence of the consideration, the sale lacked one of the essential requisites of a valid
contract; that the defense of prescription was rejected because the action to impugn the void contract
was... imprescriptible; and that the promissory notes and the real estate mortgage in favor of the
petitioners were nonetheless valid, rendering the respondents liable to still pay their outstanding
obligation with interest.
On appeal by the petitioners, the CA affirmed the RTC with modification under its assailed
decision of October 20, 2003
The CA pronounced the deed of sale as void but not because of the supposed lack of
consideration as the RTC had indicated, but because of the deed of sale having been executed at the
same time as the real estate mortgage, which rendered the sale as a prohibited pactum... commissorium
in light of the fact that the deed of sale was blank as to the consideration and the date, which details
would be filled out upon the default by the respondents; that the promissory notes contained no stipulation
on the payment of interest on the obligation, for... which reason no monetary interest could be imposed
for the use of money; and that compensatory interest should instead be imposed as a form of damages
arising from Linda's failure to pay the outstanding obligation.
Issues:
1. Whether or not the CA erred in ruling against the validity of the deed of sale; and (
2. Whether or not the CA erred in ruling that no monetary interest was due for Linda's use of
Adelaida's money.
Ruling:
Article 2088 of the Civil Code prohibits the creditor from appropriating the things given by way of
pledge or mortgage, or from disposing of them; any stipulation to the contrary is null and void.
1. The elements for pactum commissorium to exist are as follows,... to wit: (a) that there should
be a pledge or mortgage wherein property is pledged or mortgaged by way of security for the payment of
the principal obligation; and (b) that there should be a stipulation for an automatic appropriation by the
creditor of the thing... pledged or mortgaged in the event of non-payment of the principal obligation within
the stipulated period.[9] The first element was present considering that the property of the respondents
was mortgaged by Linda in favor of Adelaida as security for the... former's indebtedness. As to the
second, the authorization for Adelaida to appropriate the property subject of the mortgage upon Linda's
default was implied from Linda's having signed the blank deed of sale simultaneously with her signing of
the real estate mortgage. The haste... with which the transfer of property was made upon the default by
Linda on her obligation, and the eventual transfer of the property in a manner not in the form of a valid
dacion en pago ultimately confirmed the nature of the transaction as a pactum... commissorium.
The petitioners have theorized that their transaction with the respondents was a valid dacion en
pago by highlighting that it was Linda who had offered to sell her property upon her default. Their theory
cannot stand scrutiny. Dacion en pago is in the nature of a... sale because property is alienated in favor of
the creditor in satisfaction of a debt in money.
To have a valid dacion en pago, therefore, the alienation of... the property must fully extinguish
the debt. Yet, the debt of the respondents subsisted despite the transfer of the property in favor of
Adelaida.
The petitioners insist that the parties agreed that the deed of sale would not yet contain the date
and the consideration because they had still to agree on the price.[13] Their insistence is not supported
by the established circumstances. It appears that... two days after the loan fell due on October 15, 1986,
[14] Linda offered to sell the mortgaged property;[15] hence, the parties made the ocular inspection of the
premises on October 18, 1986. By that time, Adelaida had already become... aware that the appraiser
had valued the property at P70,000.00. If that was so, there was no plausible reason for still leaving the
consideration on the deed of sale blank if the deed was drafted by Adelaida on October 20, 1986,
especially considering that they could have... conveniently communicated with each other in the
meanwhile on this significant aspect of their transaction. It was also improbable for Adelaida to still hand
the unfilled deed of sale to Linda as her copy if, after all, the deed of sale would be eventually notarized
on October 22, 1986.
According to Article 1318 of the Civil Code, the requisites for any contract to be valid are, namely:
(a) the consent of the contracting parties; (b) the object; and (c) the consideration. There is a perfection of
a contract when there is a meeting of... the minds of the parties on each of these requisites.
In a sale, the contract is perfected at the moment when the seller obligates herself to deliver and
to transfer ownership of a thing or right to the buyer for a price certain, as to which the latter agrees.[19]
The absence of the consideration from Linda's... copy of the deed of sale was credible proof of the lack of
an essential requisite for the sale. In other words, the meeting of the minds of the parties so vital in the
perfection of the contract of sale did not transpire. And, even assuming that Linda's leaving the
consideration... blank implied the authority of Adelaida to fill in that essential detail in the deed of sale
upon Linda's default on the loan, the conclusion of the CA that the deed of sale was a pactum
commisorium still holds, for, as earlier mentioned, all the elements of pactum... commisorium were
present.
2. Anent interest
The CA correctly deleted the monetary interest from the judgment. Pursuant to Article 1956 of the Civil
Code, no interest shall be due unless it has been expressly stipulated in writing. In order for monetary
interest to be imposed, therefore, two requirements must be... present, specifically: (a) that there has
been an express stipulation for the payment of interest; and (b) that the agreement for the payment of
interest has been reduced in writing.
Accordingly, the legal rate of interest on the outstanding obligation of P43,492.15 as of June 28,
1990, as the CA found, should be as follows: (a) from the time of demand on October 13, 1994 until June
30, 2013, the legal rate of interest was 12% per annum conformably... with Eastern Shipping Lines; and
(b) following Nacar, from July 1, 2013 until full payment, the legal interest is 6% per annum.
WHEREFORE, the Court AFFIRMS the decision promulgated on October 20, 2003 subject to the
MODIFICATION that the amount of P43,492.15 due from the respondents shall earn legal interest of 12%
per annum reckoned from October 13, 1994 until June 30, 2013,... and 6% per annum from July 1, 2013
until full payment.
 Mobil Oil Philippines, Inc., Vs. CA and Fernando A. Pedrosa
G.R. L-58122 December 29, 1989

Facts:
The original case was an action for damages filed by private respondent Fernando A. Pedrosa
against petitioner Mobil Oil Philippines alleging that the latter deliberately delayed the delivery of gasoline
to him notwithstanding his pre-paid order dated February 14, 1974.
Pedrosa, the plaintiff/respondent is a dealer of defendant's/petitioner’s petroleum products and
accessories operating a Mobil gasoline service station under the name of Anne Marie Mobil Service
Station located at Aurora Blvd., San Juan, Metro Manila.
On February 15, 1974-a Friday while there was still this oil crisis, plaintiff placed with defendant a
pre-paid order for 8,000 liters of premium gasoline and 2,000 liters of regular gasoline paying therefore a
PBTC Cashier's Check in the amount of P 4,610.00, with delivery date on same date. The order was
received by the defendant’s clerk and approved for release by its credit man on same date.
Order was held until February 19, 1974, the reason for the delay being that on February 18 there
was a price increase and they had to give priority to the recall of invoices already with their warehouse
and dispatcher for re-pricing. The order was increased by P2,880. Plaintiff refused to pay the price
differential of P2,880.00 corresponding to the February 15 order, as reflected in Exhibit 3, but this
notwithstanding defendant delivered to plaintiff this February 15 order on March 5, 1974, albeit on the
basis of the new increased prices thus reflecting an outstanding obligation of P 2,880.00 against plaintiff.
Defendant's contention that since the gasoline was actually delivered on March 5, 1974, the then
prevailing increased rates should be made to apply and not the price prevailing on February 14, 1974.
Plaintiff disagreed by arguing that defendant committed a contractual breach and incurred in
delay that should make it liable for damages when it did not deliver the gasoline to plaintiff on the agreed
due date of delivery appearing on the prepaid order i.e. February 15,1974 and that therefore defendant
cannot claim benefits by reason of this breach.
Both the trial court and the appellate court found in favor of plaintiff. Ordering the defendant to
pay the following:
P 3,470.00 — for unearned profits on the subject prepaid order of February 15, 1974;
P 2,360.00 — for loss of earnings due to the suspension of gasoline deliveries, occasioned by
plaintiffs refusal to pay the price differentials;
P 25,000.00 — for exemplary damages
P 50,000.00 — for moral damages, and
P 10,000.00 — for attorney's fees
Hence, this appeal.
The Court finds and so holds that defendant deliberately delayed the delivery of the gasoline in
question to a date subsequent to February 15,1974, in the erroneous belief that thereby it could impose
upon the defendant the increased new price that took effect on February 18, 1974.
Pending final judgement respondent filed the following motion:
to require petitioner to file a supersedes bond or deposit with this Court the amount awarded to
private respondent by the lower court; and the judgment award should be adjusted upward by at least
150% in keeping with the inflation that has supervened.

Issue: Whether or not judgment award should be adjusted upward by at least 150% in keeping with the
inflation that has supervened?

Ruling:
 No. Inflation adjustment may not be invoked nor applied without a proper declaration of
extraordinary inflation or deflation of currency by the competent authorities.
As held in Commissioner of Public Highways vs. Burgos (96 SCRA 831): An agreement is
needed for the effects of an extraordinary inflation to be taken into account to alter the value of the
currency at the time of the establishment of the obligation which, as a rule, is always the determinative
element, to be varied by agreement that would find reason only in the supervention of extraordinary
inflation or deflation.
In the case at bar, the obligation of the petitioner, if any, is based on law since the same calls for
the application of the Civil Code provisions on damages. Moreover, there has been no official
pronouncement or declaration of the existence of extraordinary inflation or deflation.
 Philippine National Bank Vs. Lilibeth S. Chan

G.R. 206037, May 13, 2017

Facts:

The petitioner Philippine National Bank (PNB) and the respondent Lilibeth S. Chan have an
agreement, where the respondent is the owner of a three-storey commercial building situated in A. Linao
Street, Paco, Manila with Transfer Certificate of Title No. 208782. The respondent leased the commercial
building to PNB last May 10, 2000 for a five years contract period starting from December 15, 1999 to
December 14, 2004 with a monthly rental of Php 76,160.00. However, the petitioner continued to occupy
the property on a monthly basis with a monthly rental of Php 116,788.44 after the contract period has
expired. The petitioner vacated the premises on March 23, 2006.

On August 26, 2005, the respondent filed a complaint for unlawful detainer before the
Metropolitan Trial Court against PNB for failure to pay the monthly rentals from October 2004 until August
2005.

Hearing held in Metropolitan Trial Court on April 25, 2006 wherein both parties agreed to apply
the rental proceeds from October 2004 to January 15, based on the respondents outstanding loan. In
August 9, 2006 Metropolitan Trial Court ordered PNB to pay respondent accrued rentals in the amount of
Php 1,348,643.92 with interest at 6% per annum from January 16, 2005 up to March 23, 2006.

The petitioner appealed to the Regional Trial Court in Metropolitan Trial Court decision last
August 9, 2006. Philippine National Bank insisted that the respondent is not entitled to the disputed rental
proceeds amounting to Php 1,348,643.92.

The Regional Trial Court affirmed the Metropolitan Trial Court ruling. The RTC ruled that the
respondent is entitled to legal interest of 6% per annum and attorney’s fees for having been compelled to
litigate to protect her interest, the same with Metropolitan Trial Court decision. Philippine National Bank
filed a motion for reconsideration but the RTC denied the motion. After the denial, the petitioner filed a
Petition for Review under the Rule of Court before the Court of Appeals challenging the RTC decision.

The Court of Appeals found no sufficient evidence on record that the amount of respondent’s
liability as of October 31, 2006 is indeed Php 18,016,300.71 as the petitioner claims. The Court of
Appeals found that the petitioner is liable to pay the 6% legal interest rate as prescribed under the Article
2209 of Civil Code. The Court of Appeals deleted attorney’s fees because of the public policy that no
premium should be placed on the right to litigate. Moreover, PNB filed a partial Motion for
Reconsideration but the Court of Appeals denied the motion. The petitioner filed Petition for Review on
Certiorari before the Court, assailing the Court of Appeals decision.

Issues:

1. Whether or not the petitioner can properly consigned the disputed rental payments in the
amount of P1, 348,643.92 with the Office of the Clerk of Court of the MeTC of Manila.

2. Whether or not the petitioner incurred delay payment of rentals to the respondent, making it
liable to pay legal interest to the latter.

3. Whether or not the petitioner is entitled to the disputed rental proceeds in order to cover the
alleged deficiency in payment of the respondent’s liability after the foreclosure proceedings.
Ruling:

1. Yes. Under Article 1256 of the Civil Code, consignation alone is sufficient even without a prior
tender payment a) when the creditor is absent or unknown or does not appear at the place of payment, b)
when he is incapacitated to receive the payment at the time it is due, c) when, without just cause, he
refuses to give a receipt, d) when two or more persons claim the same right to collect, and e) when the
title of the obligation has been lost. In addition, for consignation to be valid, the debtor must comply with
the following requirements under the law: 1) there was a debt due, 2) valid prior tender of payment,
unless the consignation was made of some legal cause provided in Article 1256, 3) previous notice of the
consignation has been given to the persons interested in the performance of the obligation, 4) the amount
or thing due was placed at the disposal of the court, and 5) after the consignation had been made, the
persons interested were notified thereof. Failure in any of these requirements is enough ground to render
consignation ineffective.

2. Yes. Article 2209 provides that if the debtor incurs delay in the performance of an obligation
consisting of the payment of a sum of money, he shall be liable to pay the interest agreed upon, and in
the absence of stipulation, the legal interest at 6% per annum, from January 16, 2005 up to May 30, 2006.

3. No. As for the issue on the petitioner’s entitlement to the subject rental proceeds to cover the
deficiency in payment after the foreclosure sale of the mortgaged property, SC agree with CA’s finding
that there is no sufficient evidence on record to show that such a deficiency exists. Unfortunately, the
Statement of Account submitted by PNB is not enough to prove his claim, considering that is unsupported
by any corroborating evidence. Besides, the copy of the document in the records, both in the CA rollo and
the Supr eme Court rollo, consists of illegible pages. The Supreme Court denied the Petition for
Review on Centiorari.
 Far East Bank Vs. Diaz Realty Inc.,

GR 138588, August 23, 2001

Facts:
Sometime in August 1973, Diaz and Company got a loan from the former PaBC [Pacific Banking
Corporation] in the amount of P720,000.00, with interest at 12% per annum, later increased to 14%, 16%,
18% and 20%.  The loan was secured by a real estate mortgage over... two parcels of land owned by the
plaintiff Diaz Realty, both located in Davao City.
In 1981, Allied Banking Corporation rented an office space in the building constructed on the
properties covered by the mortgage contract, with the conformity of mortgagee PaBC, whereby the...
parties agreed that the monthly rentals shall be paid directly to the mortgagee for the lessor's account,
either to partly or fully pay off the aforesaid mortgage indebtedness.
Allied Bank paid the monthly rentals to PaBC instead of to the... plaintiffs.
On July 5, 1985, the Central Bank closed PaBC, placed it under receivership
Sometime in December 1986, appellant FEBTC purchased the credit of Diaz & Company in favor
of PaBC, but it was not until March 23,... 1988 that Diaz was informed about it.
According to the plaintiff... on March 23, 1988... that Cashier Ramon Lim told him that as of such
date, his loan was P1,447,142.03... that asked the defendant to make an accounting of the monthly rental
payments made by Allied Bank; that on December 14, 1988,[6] Diaz tendered to FEBTC the amount of
P1,450,000.00 through an Interbank check, in order to prevent the imposition of additional interests,
penalties and surcharges on its loan; that FEBTC did not accept it as payment; that instead, Diaz was
asked to deposit the amount with the defendant's Davao City Branch Office... that in the meantime, Diaz
wrote the defendant, asking that the interest rate be reduced from 20% to 12% per annum, but no reply
was ever made; that subsequently... the defendant told him to change the P1,450,000.00 deposit into a
money market placement, which he did; that the money market placement expired on April 14, 1989; that
when there was still no news from the defendant whether or not it [would] accept his tender of payment,
he filed this case at the Regional Trial Court of Davao City.
The defendant set up the following special/affirmative defenses:  that sometime in December
1986, FEBTC purchased from the PaBC the account of the plaintiffs for a total consideration of
P1,828,875.00; that despite such purchase, PaBC Davao Branch continued to collect interests and
penalty charges on the loan from January 6, 1987 to July 8, 1988 CA sustained the trial court's finding
that there was a valid tender of payment in the sum of P1,450,000, made by Diaz Realty Inc. in favor of
Far East Bank and Trust Company.
The appellate court reasoned that petitioner failed to effectively rebut respondent's... evidence
that it so tendered the check to liquidate its indebtedness, and that petitioner had unilaterally treated the
same as a deposit instead.
Issues: Whether or not the Court of Appeals correctly ruled that the validity of the tender of payment was
not properly raised in the trial court and could not thus be raised in the appeal.
Ruling:
The Petition is not meritorious.
Tender of Payment
Petitioner resolutely argues that the CA erred in upholding the validity of the tender of payment
made by respondent.  What the latter had tendered to settle its outstanding obligation, it points out, was a
check which could not be considered legal tender.
We disagree.  The records show that petitioner bank purchased respondent's account from PaBC
in December 1986, and that the latter was notified of the transaction only on March 23, 1988.  Thereafter,
Antonio Diaz, president of respondent corporation, inquired from... petitioner on the status and the
amount of its obligation.  He was informed that the obligation summed up to P1,447,142.03.  On
November 14, 1988, petitioner received from respondent Interbank Check No. 81399841 dated
November 13, 1988, bearing the amount of P1,450,000, with the notation "Re: Full Payment of Pacific
Bank Account now turn[ed] over to Far East Bank."[10] The check was subsequently cleared and honored
by Interbank, as shown by the Certification it issued on January 20, 1992.[11]
True, jurisprudence holds that, in general, a check does not constitute legal tender, and that a
creditor may validly refuse it.[12] It must be emphasized, however, that this dictum does not prevent a
creditor from accepting a check as payment.  In... other words, the creditor has the option and the
discretion of refusing or accepting it.
In the present case, petitioner bank did not refuse respondent's check. On the contrary, it
accepted the check which, it insisted, was a deposit.  As earlier stated, the check proved to be fully
funded and was in fact honored by the drawee bank. 
Moreover, petitioner was in possession of the money for several months. In other words, tender of
payment is the definitive act of offering the creditor what is due him or her, together with the demand that
the creditor accept the same.
Finally, petitioner points out that, in any case, tender of payment extinguishes the obligation only after
proper consignation, which respondent did not do. The argument does not persuade.  For a consignation
to be necessary, the creditor must have refused, without just cause, to accept the debtor's payment.[15]
However, as pointed out earlier, petitioner accepted respondent's check by... accepting the tendered
check and converting it into money, petitioner is presumed to have accepted it as payment.  To hold
otherwise would be inequitable and unfair to the obligor.
 Far East Bank & Trust v. Diaz Realty Inc.
G.R. No. 138588, August 23, 2001

Facts:
Diaz and Co. obtained a loan from Pacific Banking Corp. in 1974 in the amount of P720,000 at
12% interest p.a. which was increased thereafter.  The said loan was secured with a real estate mortgage
over two parcels of land owned by Diaz Realty, herein respondent. Subsequently, the loan account was
purchased by the petitioner Far East Bank (FEBTC). Two years after, the respondent through its
President inquired about its obligation and upon learning of the outstanding obligation, it tendered
payment in the form of an Interbank check in the amount of P1,450,000 in order to avoid the further
imposition of interests. The payment was with a notation for the full settlement of the obligation.

2. The petitioner accepted the check but it alleged in its defense that it was merely a deposit. When the
petitioner refused to release the mortgage, the respondent filed a suit. The lower court ruled that there
was a valid tender of payment and ordered the petitioner to cancel the mortgage. Upon appeal, the
appellate court affirmed the decision.

Issue: Whether or not there was a valid tender of payment to extinguish the obligation of the respondent.

Ruling:
Yes. Although jurisprudence tells us that a check is not a legal tender and a creditor may validly
refuse it, this dictum does not prevent a creditor from accepting a check as payment. Herein, the
petitioner accepted the check and the same was cleared. 

A tender of payment is the definitive act of of offering the creditor what is due him or her, together
with the demand that he accepts it. More important is that there must be a concurrence of intent, ability
and capability  to make good such offer, and must be absolute and must cover the amount due. The acts
of the respondent manifest its intent, ability and capability. Hence, there was a valid tender of payment. 

Meanwhile, the transfer of credit from Pacific Bank to the petitioner did not involve an effective
novation but an assignment of credit. As such, the petitioner has the right to collect the full value of the
credit from the respondent subject to the conditions of the promissory note previously executed. 
 Wolfgang Aurbach Vs. Sanitary Wares Manufacturing Corporation
GR 75875, December 15, 1989
Facts:
ASI, a foreign corporation domiciled in Delaware, United States entered into an Agreement with
Saniwares and some Filipino investors whereby ASI and the Filipino investors agreed to... participate in
the ownership of an enterprise which would engage primarily in the business of manufacturing in the
Philippines and selling here and abroad vitreous china and sanitary wares.  The parties agreed that the
business operations in the Philippines shall be carried on by an incorporated enterprise and that the name
of the corporation shall initially be "Sanitary Wares Manufacturing Corporation."
The management of the Corporation shall be vested in a Board of Directors, which shall consist
of nine individuals.  As long as American-Standard shall own at least 30% of the outstanding stock of the
Corporation, three of the nine directors... shall be designated by American-Standard, and the other six
shall be designated by the other stockholders of the Corporation.
Later, the 30% capital stock of ASI was increased to 40%.  The corporation was also registered
with the Board of Investments for availment of incentives with the condition that at least 60% of the capital
stock of the corporation shall be owned... by Philippine nationals.
Unfortunately, with the business successes, there came a deterioration of the initially harmonious
relations between the two groups. 
According to the Filipino group, a basic disagreement was due to their desire to expand the
export operations of the company to which ASI objected as it apparently had other subsidiaries or joint
venture groups in the countries where Philippine exports were... contemplated. On March 8, 1983, the
annual stockholders' meeting was held. There were protests against the action of the Chairman and
heated arguments ensued. These incidents triggered off the filing of separate petitions by the parties with
the Securities and Exchange Commission (SEC). 
The first petition filed was for preliminary injunction by Saniwares, Ernesto V. Lagdameo, Baldwin
Young, Raul A. Boncan, Ernesto R. Lagdameo, Jr., Enrique Lagdameo and George F. Lee against
Luciano Salazar and Charles Chamsay.
The second petition was for quo warranto and application for receivership by Wolfgang Aurbach,
John Griffin, David Whittingham, Luciano E. Salazar and Charles Chamsay... against the group of Young
and Lagdameo (petitioners in SEC Case No. 2417) and Avelino F. Cruz.
The two petitions were consolidated and tried jointly by a hearing officer who rendered a decision
upholding the election of the Lagdameo Group and dismissing the quo warranto petition of Salazar and
Chamsay.  The ASI Group and Salazar appealed the decision to the SEC en banc which affirmed the
hearing officer's decision.
Issues: Whether it was a joint venture or a corporation
Ruling:
The rule is that whether the parties to a particular contract have thereby established among
themselves a joint venture or some other relation depends upon their actual intention which is determined
in accordance with the rules governing the interpretation and... construction of contracts
In the instant cases, our examination of important provisions of the Agreement as well as the
testimonial evidence presented by the Lagdameo and Young Group shows that the parties agreed to
establish a joint venture and not a... corporation.
The history of the organization of Saniwares and the unusual arrangements which govern its
policy making body are all consistent with a joint venture and not with an ordinary corporation.
 Moreover, ASI in its communications referred to the enterprise as joint venture.  Baldwin Young
also testified that Section 16(c) of the Agreement that "Nothing herein contained shall be construed to
constitute any of the parties hereto partners or... joint venturers in respect of any transaction hereunder"
was merely to obviate the possibility of the enterprise being treated as partnership for tax purposes and
liabilities to third parties.
The legal concept of a joint venture is of common law origin.  It has no precise legal definition, but
it has been generally understood to mean an organization formed for some temporary purpose.
The main distinction cited by most opinions in common law... jurisdictions is that the partnership
contemplates a general business with some degree of continuity, while the joint venture is formed for the
execution of a single transaction, and is thus of a temporary nature.
 Naga Telephone Co., Inc. (Natelco) And Luciano M. Maggay, Vs. The Court Of Appeals And
Camarines Sur Ii Electric Cooperative, Inc. (Casureco Ii)
230 SCRA 351 ,February 24, 1994

Facts: 
Petitioner Naga Telephone Co., Inc. (NATELCO) is a telephone company rendering local as well
as long distance service in Naga City while private respondent Camarines Sur II Electric Cooperative, Inc.
(CASURECO II) is a private corporation established for the purpose of operating an electric power service
in the same city. 

On November 1, 1977, the parties entered into a contract for the use by petitioners in the
operation of its telephone service the electric light posts of private respondent in Naga City. In
consideration therefor, petitioners agreed to install, free of charge, ten (10) telephone connections for the
use by private respondent. After the contract had been enforced for over ten (10) years, private
respondent filed with the Regional Trial Court against petitioners for reformation of the contract with
damages, on the ground that it is too one-sided in favor of petitioners; that it is not in conformity with the
guidelines of the National Electrification Administration (NEA); that after eleven (11) years of petitioners'
use of the posts, the telephone cables strung by them thereon have become much heavier with the
increase in the volume of their subscribers; that a post now costs as much as P2,630.00; so that justice
and equity demand that the contract be reformed to abolish the inequities thereon. 

As second cause of action, private respondent alleged that starting with the year 1981, petitioners
have used 319 posts outside Naga City, without any contract with it; that at the rate of P10.00 per post,
petitioners should pay private respondent for the use thereof the total amount of P267,960.00 from 1981
up to the filing of its complaint; and that petitioners had refused to pay private respondent said amount
despite demands. And as third cause of action, private respondent complained about the poor servicing
by petitioners. 

The trial court ruled, as regards private respondent’s first cause of action, that the contract should
be reformed by ordering petitioners to pay private respondent compensation for the use of their posts in
Naga City, while private respondent should also be ordered to pay the monthly bills for the use of the
telephones also in Naga City. And taking into consideration the guidelines of the NEA on the rental of
posts by telephone companies and the increase in the costs of such posts, the trial court opined that a
monthly rental of P10.00 for each post of private respondent used by petitioners is reasonable, which
rental it should pay from the filing of the complaint in this case on January 2, 1989. And in like manner,
private respondent should pay petitioners from the same date its monthly bills for the use and transfers of
its telephones in Naga City at the same rate that the public are paying. 

On private respondent's second cause of action, the trial court found that the contract does not
mention anything about the use by petitioners of private respondent's posts outside Naga City. Therefore,
the trial court held that for reason of equity, the contract should be reformed by including therein the
provision that for the use of private respondent's posts outside Naga City, petitioners should pay a
monthly rental of P10.00 per post, the payment to start on the date this case was filed, or on January 2,
1989, and private respondent should also pay petitioners the monthly dues on its telephone connections
located outside Naga City beginning January, 1989. And with respect to private respondent's third cause
of action, the trial court found the claim not sufficiently proved. 

The Court of Appeals affirmed the decision of the trial court, but based on different grounds to wit:
(1) that Article 1267 of the New Civil Code is applicable and (2) that the contract was subject to a
potestative condition which rendered said condition void. 

Issue: Whether or not the principle of Rebus Sic Stantibus is applicable in the case at bar. 
Ruling: 
No. Article 1267 speaks of "service" which has become so difficult. Taking into consideration the
rationale behind this provision, the term "service" should be understood as referring to the "performance"
of the obligation. 

In the present case, the obligation of private respondent consists in allowing petitioners to use its
posts in Naga City, which is the service contemplated in said article. Furthermore, a bare reading of this
article reveals that it is not a requirement thereunder that the contract be for future service with future
unusual change. According to Senator Arturo M. Tolentino, Article 1267 states in our law the doctrine of
unforseen events. This is said to be based on the discredited theory of rebus sic stantibus in public
international law; under this theory, the parties stipulate in the light of certain prevailing conditions, and
once these conditions cease to exist the contract also ceases to exist. Considering practical needs and
the demands of equity and good faith, the disappearance of the basis of a contract gives rise to a right to
relief in favor of the party prejudiced. 

The allegations in private respondent's complaint and the evidence it has presented sufficiently
made out a cause of action under Article 1267. The Court, therefore, release the parties from their
correlative obligations under the contract. However, the disposition of the present controversy does not
end here. The Court has to take into account the possible consequences of merely releasing the parties
therefrom: petitioners will remove the telephone wires/cables in the posts of private respondent, resulting
in disruption of their essential service to the public; while private respondent, in consonance with the
contract will return all the telephone units to petitioners, causing prejudice to its business. 

The Court shall not allow such eventuality. Rather, the Court requires, as ordered by the trial
court: 1) petitioners to pay private respondent for the use of its posts in Naga City and in the towns of
Milaor, Canaman, Magarao and Pili, Camarines Sur and in other places where petitioners use private
respondent's posts, the sum of ten (P10.00) pesos per post, per month, beginning January, 1989; and
2)private respondent to pay petitioner the monthly dues of all its telephones at the same rate being paid
by the public beginning January, 1989. The peculiar circumstances of the present case, as distinguished
further from the Occeña case, necessitates exercise of a equity jurisdiction. By way of emphasis, the
Court reiterates the rationalization of respondent court that: 

". . . In affirming said ruling, we are not making a new contract for the parties herein, but
we find it necessary to do so in order not to disrupt the basic and essential services being
rendered by both parties herein to the public and to avoid unjust enrichment by appellant at the
expense of plaintiff . . . " 

Decision affirmed.
 PART 4

1. Exceptions to the rule that in Application of Payment, there must be only one debtor and only one
creditor.

Answer:

The exception in application of payment where there is only one debtor and creditor is that if there
is stipulation to the contrary; or application of payment is made by the party for whose benefit the term
has been constituted.

2. Kinds of Payment by Cession

Answer:

Payment by Cession may either be Contractual or Judicial. The cession referred to in Article
1255 of the Code is Contractual, while the cession which is regulated by the Insolvency Law and which
may be voluntary or involuntary, is Judicial.
 PART 5
Explain the reason for Consignation.

Answer:

Consignation is the act of depositing the thing or amount due with the proper court when the
creditor does not desire or cannot receive it, after complying with the formalities required by law.
Consignation is applicable when there is debt or an obligation to pay. It is always a judicial and it
generally requires a prior tender of payment which is, by its very nature, extrajudicial.