CALTEX V. IAC (Art.

1245)

FACTS:
On January 12, 1978, private respondent Asia Pacific Airways Inc. entered into an
agreement with petitioner Caltex (Philippines) Inc., whereby petitioner agreed to supply private
respondent's aviation fuel requirements for two (2) years, covering the period from January 1,
1978 until December 31, 1979.

As of June 30, 1980, private respondent had an outstanding obligation to petitioner in

the total amount of P4,072,682.13, representing the unpaid price of the fuel supplied. To settle
this outstanding obligation, private respondent executed a Deed of Assignment dated July 31,
1980, wherein it assigned to petitioner its receivables or refunds of Special Fund Import
Payments from the National Treasury of the Philippines to be applied as payment of the
amount of P4,072,683.13 which private respondent owed to petitioner. On February 12, 1981,
pursuant to the Deed of Assignment, Treasury Warrant No. B04708613 in the amount of
P5,475,294.00 representing the refund to respondent of Special Fund Import Payment on its
fuel purchases was issued by the National Treasury in favor of petitioner. Four days later, on
February 16, 1981, private respondent, having learned that the amount remitted to petitioner
exceeded the amount covered by the Deed of Assignment, wrote a letter to petitioner,
requesting a refund of said excess.

Petitioner, acting on said request, made a refund in the amount of P900,000.00 plus in
favor of private respondent. The latter, believing that it was entitled to a larger amount by way
of refund, wrote petitioner anew, demanding the refund of the remaining amount. In response,
petitioner informed private respondent that the amount not returned (P510,550.63)
represented interest and service charges at the rate of 18% per annum on the unpaid and
overdue account of respondent from June 1, 1980 to July 31, 1981.

Thus, on September 13, 1982, private respondent filed a complaint against petitioner in
the Regional Trial Court of Manila, to collect the sum of P510,550.63.00.

On November 7, 1983, the trial court rendered its decision dismissing the complaint.
Private respondent (plaintiff) appealed to the Intermediate Appellate Court (IAC). On August
27, 1985, a decision was rendered by the said appellate court reversing the decision of the trial
court, and ordering petitioner to return the amount of P510,550.63 to private respondent.

ISSUE:
Whether or not there is a valid dation in payment in this case.

RULING:
No. The Deed of Assignment executed by the parties on July 31, 1980 is not a dation
in payment and did not totally extinguish respondent's obligations as stated therein.

It is clear that a dation in payment does not necessarily mean total extinguishment of
the obligation. The obligation is totally extinguished only when the parties, by agreement,
express or implied, or by their silence, consider the thing as equivalent to the obligation. In the
instant case, the then Intermediate Appellate Court failed to take into account the express
recitals of the Deed of Assignment.
 Hence, it could easily be seen that the Deed of Assignment speaks of three (3)
obligations (1) the outstanding obligation of P4,072,682.13 as of June 30, 1980; (2) the
applicable interest charges on overdue accounts; and (3) the other avturbo fuel lifting and
deliveries that assignor (private respondent) may from time to time receive from assignee
(Petitioner). As aptly argued by petitioner, if it were the intention of the parties to limit or fix
respondent's obligation to P4,072.682.13, they should have so stated and there would have
been no need for them to qualify the statement of said amount with the clause "as of June 30,
1980 plus any applicable interest charges on overdue account" and the clause "and other
avturbo fuel lifting and deliveries that ASSIGNOR may from time to time receive from the
ASSIGNEE".

In order to judge the intention of the contracting parties, their contemporaneous and
subsequent acts shall be principally considered (Art. 1253, Civil Code). The foregoing
subsequent acts of the parties clearly show that they did not intend the Deed of Assignment to
have the effect of totally extinguishing the obligations of private respondent without payment of
the applicable interest charges on the overdue account.

Finally, the payment of applicable interest charges on overdue account, separate from the
principal obligation of P4,072,682.13 was expressly stipulated in the Deed of Assignment. The
law provides that "if the debt produces interest, payment of the principal shall not be deemed to
have been made until the interests have been covered." (Art. 1253, Civil Code).

TAN SHUY V. SPOUSES MAULAWIN (Art. 1245)

FACTS:
Petitioner Tan Shuy is engaged in the buying of Copra and Corn while respondent
Guillermo Maulawin is a farmer-businessman also engaged in the buying and selling of Copra.
Petitioner extended a loan to respondent in the amount of Php420, 000.00. In consideration
thereof, Guillermo obligated himself to pay the loan and to sell copra to petitioner. Petitioner
alleged that despite repeated demands, respondent remitted a total Php28, 500.00 only; hence
an outstanding balance of Php391, 500.00. When no settlement was reached, petitioner filed a
complaint before the RTC. Respondent Guillermo averred that he had already paid the subject
loan in full when he continuously delivered and sold copra to petitioner from April 1998 to
April 1999. Respondent said they had an oral arrangement that the net proceeds thereof shall
be applied as installment payments for the loan. He alleged that his deliveries amounted to
₱420,537.68 worth of copra. To bolster his claim, he presented copies of pesadas issued by
Elena and Vicente, children of petitioner. The trial court issued a Decision ruling that the net
proceeds from copra deliveries should be applied as installment payments for the loan.
However, the court did not credit the net proceeds from the delivery of corn amounting to
Php41, 585.25 for Guillermo himself testified that it was the net proceeds from the copra
deliveries that were to be applied as installment payments for the loan. Hence, it should be
deducted from the total value of ₱420,537.68 claimed by Guillermo to be the total value of his
copra deliveries. Accordingly, the trial court found that respondent had not made a full
payment for the loan, as the total creditable copra deliveries merely amounted to ₱378,952.43,
leaving a balance of ₱41,047.57 in his loan.

ISSUE:
Whether the delivery of copra amounted to installment payments (dation in payment)
for the loan obtained by respondent from petitioner.
RULING:
Yes, the subsequent arrangement between Tan Shuy and Guillermo can thus be
considered as one in the nature of a Dation in Payment. There was partial payment every time
Guillermo delivered copra to Tan Shuy, chose not to collect the net proceeds of his copra
deliveries, and instead applied the collectible as installment payments for his loan from Tan
Shuy. Pursuant to Article 1232 of the Civil Code, an obligation is extinguished by payment or
performance. There is payment when there is delivery of money or performance of an
obligation. In addition, Article 1245 provides for a special mode of payment known as dation
in payment. Dation in payment extinguishes the obligation to the extent of the value of the
thing delivered, either as agreed upon by the parties or as may be proved, unless the parties by
agreement – express or implied, or by their silence – consider the thing as equivalent to the
obligation, in which case the obligation is totally extinguished. In this regard, the Court upheld
the findings of the lower court that Pesadas from April 1998 to April 1999 shows that
Guillermo only gets the payments for trucking while the total amount which represent the total
purchase price for the copras that he delivered to the plaintiff were all given to Elena Tan Shuy
as installments for the loan he owed to plaintiff. With this partial payment, respondent remains
liable for the balance totaling ₱41,047.57

MANDARIN VILLA V. CA (Art. 1249)

FACTS:

In the evening of 19 Oct 1989, private respondent de Jesus hosted a dinner for his
friends at the petitioner’s restaurant, the Mandarin Villa Seafoods Village in Mandaluyong City.
After dinner, the waiter handed to de Jesus the bill amounting to P2,658.50. De Jesus offered
his BANKARD credit card to the waiter for payment. Minutes later, the waiter returned and
audibly informed that said credit card had expired. De Jesus demonstrated that the card had
yet to expire on Sept 1990, as embossed on its face. De Jesus approached the cashier who
again dishonored such card. De Jesus offered his BPI express credit card instead and this was
accepted, honored and verified. The trial court and CA held petitioner to be negligent.

ISSUE:
Whether payment by means of credit card is a legal tender.

RULING:

Yes.

Petitioner contends that it cannot be faulted for its cashier's refusal to accept private
respondent's BANKARD credit card, the same not being a legal tender. It argues that private
respondent's offer to pay by means of credit card partook of the nature of a proposal to novate
an existing obligation for which petitioner, as creditor, must first give its consent otherwise there
will be no binding contract between them. Petitioner cannot seek refuge behind this averment.

While it is true that private respondent did not have sufficient cash on hand when he
hosted a dinner at petitioner's restaurant, this fact alone does not constitute negligence on his
part. Neither can it be claimed that the same was the proximate cause of private respondent's
damage. We take judicial notice of the current practice among major establishments, petitioner
included, to accept payment by means of credit cards in lieu of cash. Thus, petitioner accepted
private respondent's BPI Express Credit Card after verifying its validity, a fact which all the
more refutes petitioner's imputation of negligence on the private respondent.

PAPA V. VALENCIA (Art. 1249)

FACTS:
The case arose from a sale of a parcel of land allegedly made to private respondent
Penarroyo by petitioner acting as attorney-in-fact of Anne Butte. The purchaser, through
Valencia, made a check payment in the amount of P40,000 and in cash, P5,000. Both were
accepted by petitioner as evidenced by various receipts. It appeared that the said property has
already been mortgaged to the bank previously together with other properties of Butte.

When Butte passed away, the private respondent Penarroyo now demanded that the
title to the property be conveyed to him, however the bank refused. Hence, the filing of a suit
for specific performance by private respondents against the petitioner. The lower court ruled in
favor of the private respondents and ordered herein petitioner the conveyance or the property
or if not, its payment. The petitioner appealed the lower court's decision alleging that the sale
was not consummated as he never encashed the check given as part of the purchase price.

The Court of Appeals affirmed with modifications the lower court's decision. It held
that there was a consummated sale of the subject property despite.

ISSUE:
Whether or not the check is a valid tender of payment.

RULING:
While it is true that the delivery of a check produces the effect of payment only when it
is cashed, pursuant to Art. 1249 of the Civil Code, the rule is otherwise if the debtor is
prejudiced by the creditors unreasonable delay in presentment. The acceptance of a check
implies an undertaking of due diligence in presenting it for payment, and if he from whom it is
received sustains loss by want of such diligence, it will be held to operate as actual payment of
the debt or obligation for which it was given. It has, likewise, been held that if no presentment
is made at all, the drawer cannot be held liable irrespective of loss or injury unless presentment
is otherwise excused. This is in harmony with Article 1249 of the Civil Code under which
payment by way of check or other negotiable instrument is conditioned on its being cashed,
except when through the fault of the creditor, the instrument is impaired. The payee of a check
would be a creditor under this provision and if its non-payment is caused by his negligence,
payment will be deemed effected and the obligation for which the check was given as
conditional payment will be discharged

FILIPINO PIPE V. NAWASA (Art. 1250)

FACTS:
In 1961, NAWASA entered into a contract with FPFC for the supply of pressure pipes.
After delivery and failure of NAWASA to pay in full, FPFC initiated a collection suit on 1967
at the CFI of Manila. The trial court ruled in favor of FPFC, however NAWASA failed again
to pay. On 1971, FPFC filed another complaint, this time, seeking an adjustment of the unpaid
balance in accordance with the value of the Philippine peso when the decision was rendered in
1967.

NAWASA filed a motion to dismiss but it was not granted by the Court. However, the
complaint filed by FPFC was also dismissed. Appeal was originally brought by the FPFC to the
Court of Appeals but since the principal purpose of the action was to secure a judicial
declaration that there exists extraordinary inflation within the meaning of Article 1250 of the
New Civil Code, it was forwarded to the Supreme Court, pursuant to Section 3, Rule 50 of the
Rules of Court.

ISSUE:
Whether there was extraordinary inflation within the meaning of Article 1250.

HELD:
No. While appellant's voluminous records and statistics proved that there has been a
decline in the purchasing power of the Philippine peso, this downward fall of the currency
cannot be considered "extraordinary." It is simply a universal trend that has not spared our
country.
Extraordinary inflation exists "when there is a decrease or increase in the purchasing
power of the Philippine currency which is unusual or beyond the common fluctuation in the
value said currency, and such decrease or increase could not have reasonably foreseen or was
manifestly beyond contemplation the the parties at the time of the establishment of the
obligation.

EQUITABLE PCI BANK V. NG SHEUNG NGOR (Art. 1250)

FACTS:
On October 7, 2001, respondents Ngor and Go filed an action for amendment and/or
reformation of documents and contracts against Equitable and its employees. They claimed
that they were induced by the bank to avail of its peso and dollar credit facilities by offering low
interests so they accepted and signed Equitable’s proposal. They alleged that they were
unaware that the documents contained escalation clauses granting Equitable authority to
increase interest without their consent. These were rebutted by the bank. RTC ordered the use
of the 1996 dollar exchange rate in computing respondent’s dollar-denominated loans. CA
granted the Bank’s application for injunction but the properties were sold to public auction.

ISSUE: Whether or not there was an extraordinary deflation.

RULING:

There was no extraordinary deflation.

Extraordinary inflation exists when there is an unusual decrease in the purchasing power of
currency (that is, beyond the common fluctuation in the value of currency) and such decrease
could not be reasonably foreseen or was manifestly beyond the contemplation of the parties at
the time of the obligation. Extraordinary deflation involves an inverse situation.

For extraordinary inflation or deflation to affect an obligation, the following requisites must be
proven: a)That there was an official declaration of extraordinary deflation from the
BangkoSentral ng Pilipinas b) That the obligation was contractual in nature c)That the parties
expressly agreed to consider the effects of the extraordinary deflation.

In this case, despite the devaluation of the peso, the BSP never declared a situation of
extraordinary inflation.Moreover, although the obligation arose out of a contract, the parties
did not agree to recognize the effects of extraordinary inflation.The RTC never mentioned that
there was such a stipulation either in the promissory note or loan agreement.

Therefore, respondents Ng SheungNgor should pay their dollar-denominated loans at the

exchange rate fixed by the BSP on the date of maturity

EUFEMIA ALMEDA AND ROMEL ALMEDA V. BATHALA MARKETING

INDUSTRIES, INC (Art. 1250)

FACTS:
In May 1997, BathalaMarketng, renewed its Contract of Lease with PoncianoAlmeda.
Under the contract, Ponciano agreed to lease a porton of Almeda Compound for a monthly
rental of P1,107,348.69 for four years. On January 26, 1998, petitioner informed respondent
that its monthly rental be increased by 73% pursuant to the condition No. 7 of the contract and
Article 1250. Respondent refused the demand and insisted that there was no extraordinary
inflation to warrant such application. Respondent refused to pay the VAT and adjusted rentals
as demanded by the petitioners but continually paid the stipulated amount. RTC ruled in favor
of the respondent and declared that plaintiff is not liable for the payment of VAT and the
adjustment rental, there being no extraordinary inflation or devaluation. CA affirmed the
decision deleting the amounts representing 10% VAT and rental adjustment.

ISSUE:

RULING:

MAGDALENA ESTATES, INC. V. RODRIGUEZ (Art. 1253)

FACTS:
The Rodriguez spouses bought a parcel of land in Quezon City from Magdalena
Estates. They executed a promissory note in view of an unpaid balance of P5k. On the same
day, Rodriguez spouses and Luzon Surety executed a bond in favor of Magdalena. 
Undertaking: P5k within a 60 days from January 7, 1957. Luzon Surety to be notified in writing
within 10 days from moment of default otherwise the undertaking is automatically NAV June
20, 1958 – when obligation became due and demandable (DAD) Luzon Surety paid P5k to
Magdalena. Magdalena demanded from Rodriguez spouses P655.89, the alleged accumulated
interests on the P5k principal. Due to refusal to pay, Magdalena filed suit in the Municipal
Court of Manila to enforce collection. Court rendered judgment in favor of Magdalena.
Rodriguez spouses to pay jointly and severally P655.89 with legal interest from Nov 10, 1958
(date of filing of the complaint) Rodriguez spouses appealed to CFI. CFI also ordered
Rodriguez spouses to pay jointly and severally P655.89 + legal interest + AF.

ISSUE:
Whether there was a novation.

RULING:
No, there was no novation. Magdalena did not waive or condone the interests due
because it is very clear in the promissory note that Luzon Surety will only pay the balance of the
purchase price of P5k. The liability of Luzon Surety is not extended beyond the terms of his
contract.

There was no novation/modification of the obligation just because Magdalena accepted

without reservation the subsequent agreement in the surety bond despite its failure to provide
that is also guaranteed payment of accruing interest.

Novation by presumption is never favored. To be sustained, it needs to be established

that the old and new contracts are incompatible in all points, or that the will to novate appears
by express agreement of the parties. An obligation to pay a sum of money is not novated in a
new instrument wherein the old one is ratified by changing only the terms of payment and
adding other obligations not incompatible with the old one, or wherein the old contract is
merely supplemented by the old one.

Just because a creditor receives a guaranty or accepts payments from a third person who
has agreed to assume the obligation, when there is no agreement that the first debtor shall be
released from responsibility does not constitute a novation, and the creditor can still enforce
the obligation against the original debtor

YULIM INTERNATIONAL COMPANY V. INTERNATIONAL EXCHANGE BANK

(Art. 1253)

FACTS:
On June 2, 2000, iBank, a commercial bank, granted Yulim, a domestic partnership, 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 at 106 4th Street, 9th Avenue, Caloocan City. As further guarantee,
the partners, namely, James, Jonathan and Almerick, executed a Continuing Surety Agreement
in favor of iBank.

Yulimavailed of the credit facility as evidenced by a promissory notefor P4,246,310.00,

to mature on February 28, 2002. Yulimdefaulted on the said note. On April 5, 2002, iBank
sent demand letters to Yulim, through its President, James, and through Almerick, but without
success. iBank then filed a Complaint for Sum of Money with Replevin against Yulim and its
sureties. On August 8, 2002, the Court granted the application for a writ of replevin. Pursuant
to the Sheriff's Certificate of Sale dated November 7, 2002, the items seized from Yulim's
warehouse were worth only P140,000.00, not P500,000.00 as the petitioners have insisted.

RTC ruled in favor of iBank, holding that Yulim International Company Ltd. is liable;
and thus ordered to pay plaintiff the sum of P4,246,310.00 with interest at 16.50% per annum
from February 28, 2002 until fully paid plus cost of suit.

iBank appealed RTC’s decision before the Court of Appeals for nnot holding
individual [petitioners James, Jonathan and Almerick] solidarily liable with [Yulim] on the basis
of the continuing suretyship agreement executed by them. Court of Appeals granted the appeal
and held that [petitioners] James Yu, Jonathan Yu and AlmerickTieng Lim are hereby held
jointly and severally liable with defendant-appellant Yulim for the payment of the monetary
awards.

ISSUE:
Whether petitioners James, Jonathan and Almerick jointly and severally liable with
petitioner Yulim to pay iBank.

RULING:

Yes. The individual petitioners do not deny that they executed the Continuing Surety
Agreement, wherein they "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.

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. According to the above Article, if a person binds himself
solidarily with the principal debtor, the provisions of Articles 1207 to 1222, or Section 4,
Chapter 3, Title I, Book IV of the Civil Code on joint and solidary obligations, shall be
observed. Thus, where there is a concurrence of two or more creditors or of two or more
debtors in one and the same obligation, Article 1207 provides that among them, "[t]here is a
solidary liability only when the obligation expressly so states, or when the law or the nature of
the obligation requires solidarity."

"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.

To stress, the assignment being in its essence a mortgage, it was but a security and not a
satisfaction of the petitioners’ indebtedness. Article 1255of the Civil Code invoked by the
petitioners contemplates the existence of two or more creditors and involves the assignment of
the entire debtor’s property, not a dacion en pago.36 Under Article 1245 of the Civil Code,
“[d]ation in payment, whereby property is alienated to the creditor in satisfaction of a debt in
money, shall be governed by the law on sales.” Nowhere in the Deed of Assignment can it be
remotely said that a sale of the condominium unit was contemplated by the parties, the
consideration for which would consist of the amount of outstanding loan due to iBank from the
petitioners.

SPOUSES CACAYORIN V. ARMED FORCES AND POLICE MUTUAL BENEFIT

ASSOCIATION, INC. (Art. 1256)

FACTS:
Oscar Cacayorin filed an application with Armed Forces and Police Mutual Benefit
Association, Inc.(AFPMBAI) to purchase a property which the latter owned through a loan
facility. Oscar and his wife, Thelma, and the Rural Bank of San Teodoro executed a Loan and
Mortgage Agreement with the former as borrowers and the Rural Bank as lender, under the
auspices of PAG-IBIG. On the basis of the Rural Bank's letter of guaranty, AFPMBAI
executed in petitioners' favor a Deed of Absolute Sale, and a new title was issued in their name.
Then, the PAG-IBIG loan facility did not push through and the Rural Bank closed.
Meanwhile, AFPMBAI somehow was able to take possession of petitioners' loan documents
and the TCT, while petitioners were unable to pay the loan for the property. AFPMBAI made
written demands for petitioners to pay the loan for the property. Then, petitioners filed with
the RTC 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 Bank’s closure and
PDIC’s 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

AFPMBAI filed a motion to dismiss claiming that petitioners' complaint falls within the
jurisdiction of the Housing and Land Use Regulatory Board (HLURB), as it was filed by
petitioners in their capacity as buyers of a subdivision lot and it prays for specific performance
of contractual and legal obligations decreed under Presidential Decree No. 957(PD 957). It
added that since no prior valid tender of payment was made by petitioners, the consignation
case was fatally defective and susceptible to dismissal.

RTC granted the petition for consignation of Spouses Cacayorin. Court of Appeals reversed
RTC’s decision.

ISSUE:
Whether there is a valid consignation.

RULING:
Yes. The Complaint makes out a case for consignation.

The settled principle is that "the allegations of the Complaint determine the nature of
the action and consequently the jurisdiction of the courts. This rule applies whether or not the
plaintiff is entitled to recover upon all or some of the claims asserted therein as this is a matter
that can be resolved only after and as a result of the trial."

From the above allegations, it appears that the petitioners’ debt is outstanding; that the
Rural Bank’s 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.

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.

MYRNA RAMOS V. SUSANA S. SARAO (Art. 1256)

On February 21, 1991, Spouses Jonas Ramos and Myrna Ramos executed a contract
over their conjugal house and lot in favor of Susana S. Sarao for and in consideration
of P1,310,430.Entitled DEED OF SALE UNDER PACTO DE RETRO, the contract, inter
alia, granted the Ramos spouses the option to repurchase the property within six months from
February 21, 1991, for P1,310,430 plus an interest of 4.5 percent a month.It was further agreed
that should the spouses fail to pay the monthly interest or to exercise the right to repurchase
within the stipulated period, the conveyance would be deemed an absolute sale.

On July 30, 1991, Myrna Ramos tendered to Sarao the amount of P1,633,034.20 in the
form of two manager’s checks, which the latter refused to accept for being allegedly
insufficient.On August 8, 1991, Myrna filed a Complaint for the redemption of the property
and moral damages plus attorney’s fees. The suit was docketed as Civil Case No. 91-2188 and
raffled to Branch 145 of the Regional Trial Court (RTC) of Makati City. On August 13, 1991,
she deposited with the RTC two checks that Sarao refused to accept.

RTC denied the complaint. Court of Appeals affirmed RTC, adding that Myrna Ramos
had failed to exercise the right of repurchase, as the consignation of the two
managers checks was deemed invalid. She allegedly failed (1) to deposit the correct
repurchase price and (2) to comply with the required notice of consignation.

ISSUE:
Whether there was a valid consignation.

RULING:
Tender of payment is the manifestation by debtors of their desire to comply with or to
pay their obligation.If the creditor refuses the tender of payment without just cause, the debtors
are discharged from the obligation by the consignation of the sum due.Consignation is made by
depositing the proper amount to the judicial authority, before whom the tender of payment and
the announcement of the consignation shall be proved.All interested parties are to be notified
of the consignation.Compliance with these requisites is mandatory.

The trial and the appellate courts held that there was no valid consignation, because
petitioner had failed to offer the correct amount and to provide ample consignation notice to
Sarao.This conclusion is incorrect.
 Note that the principal loan was P1,310,430 plus 4.5 per cent monthly interest
compounded for six months. Expressing her desire to pay in the fifth month, petitioner averred
that the total amount due was P1,633,034.19, based on the computation of Sarao herself. The
amount of P2,911,579.22 that the latter demanded from her to settle the loan obligation was
plainly exorbitant, since this sum included other items not covered by the agreement. The
property had been used solely as secure ty for the P1,310,430 loan; it was therefore improper
to include in that amount payments for gasoline and miscellaneous expenses, taxes, attorneys
fees, and other alleged loans. When Sarao unjustly refused the tender of payment in the
amount of P1,633,034.20, petitioner correctly filed suit and consigned the amount in order to
be released from the latters obligation.

The two lower courts cited Article 1257 of the Civil Code to justify their ruling that
petitioner had failed to notify Respondent Sarao of the consignation. This provision of law
states that the obligor may be released, provided the consignation is first announced to the
parties interested in the fulfillment of the obligation.

The facts show that the notice requirement was complied with. In her August 1, 1991
letter, petitioner said that should the respondent fail to accept payment, the former would
consign the amount. This statement was an unequivocal announcement of consignation.
Concededly, sending to the creditor a tender of payment and notice of consignation -- which
was precisely what petitioner did -- may be done in the same act.

Because petitioners consignation of the amount of P1,633,034.20 was valid, it produced

the effect of payment. The consignation, however, has a retroactive effect, and the payment is
deemed to have been made at the time of the deposit of the thing in court or when it was
placed at the disposal of the judicial authority.The rationale for consignation is to avoid making
the performance of an obligation more onerous to the debtor by reason of causes not
imputable to him.[61]