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Case Title Short Facts Petitioner’s Contention Respondent’s Contention Issue Ruling
 1231 – 1232
PAYMENT
AGNER vs. BPI  Feb 15 2001 – Petitioner spouses Agner 1. They cannot be RTC: ordered petitioners WON THE OBLIGATION NO. There were both verbal and written demands made by
SAVINGS executed a PN with Chattel Mortgage in considered to have to jointly and severally IS EXTINGUISHED the respondent against petitioners. Even assuming that no
favor of Citimotors, Inc. defaulted in payment for pay the amount plus demand letter was sent, there is no need for it because
 For the amount of 834,768, petitioners lack of competent proof interest at the rate of 72% petitioners legally waived the necessity of notice or
shall pay 17,391k evert 15th day of each that they received the per annum from Aug demand in the PN with Chattel Mortgage, which they
succeeding month + 2001 Mitsubishi letter 2002 until fully paid voluntarily and knowingly signed in favor of respondent’s
Adventure Super Sport as security w/ CA: affirmed RTC’s PII.
interest of 6% per month for failure to decision
pay each installment on due date ** Demand is unnecessary when the parties expressly waive
demand (Art. 1169)
 Citimotors, Inc. assigned all its rights, title,
and interests to ABN AMRO Savings Bank
 The mere act of sending a demand letter would
which likewise assigned the same to BPI
suffice as effective notice.
Family Savings Bank
 Petitioners failed to pay 4 successive Re: Payment as a means of extinguishing obligation
installments (May 15 2002-August 2002) Petitioners did not take advantage of all the opportunities
 Respondent bank sent a demand letter to present their evidence in the proceedings, as they said in
requiring them to pay 576,664k or their answer:
surrender the mortgaged vehicle  Original cash deposit slips (proof of monthly
immediately upon receiving the letter amortizations in question)
 Photocopy of alleged proof of payment
 Written Requests to BPI to furnish them with
official receipts/statement of account

*** When the creditor is in possession of the document of

credit, proof of non-payment is not needed for it is
presumed. Hence, BPI’s possession of the PN with Chattel
Mortgage strongly buttresses its claim that the obligation
has not yet been extinguished.

“The creditor’s possession of the evidence of debt is proof

that the debt has not been discharged by payment. A
promissory note in the hands of the creditor is proof of
indebtedness rather than proof of payment.” (BPI vs. Spouses
Royeca)
MULTI- RTC: decreed that Martinez pay CA: reversed the RTC WON RESPONDENT’S PARTLY. The certification is admissible in evidence. After
INTERNATIONAL vs.  Respondent Ruel Martinez was the the balance of the car loan (418k decision and ruled that OBLIGATION HAS BEEN examining and analyzing Dy’s signatures, the SC finds no
MARTINEZ Operations Manager of Multi- plus interest). It held that the due Martinez had already FULFILLED/EXTINGUISH substantial reason to doubt the latter’s authenticity.
International. execution and authenticity of the fulfilled his loan ED
 June 4, 1994 – Martinez applied for and certification was not established, obligation. It gave Dy never testified that any forgery/fraud attended the
was granted a car loan (648,288k). Both as respondent himself admitted credence to the following: certification, as she only admitted that the signature therein
parties agreed that the loan was payable that the document was not  Sept. 1996 looks lke hers. For having established the due execution and
through deductions from respondents actually executed by Dy. certification authentication of the Sept. 1996 certification, the
bonuses or commissions, if any.  Deduction of the certification should be admitted in evidence to prove that
monthly the respondent partially paid the car loan in the amount of
 If respondent were to be terminated installments 337,650 k.
before the end of the term of the loan from
obligation, the unpaid balance would be respondents Re: Insufficient evident to prove full payment of the loan
immediately due and demandable without salary There is nothing in the records which shows that full
need of a demand  Petitioner’s payment has indeed been paid, as a balance of 310,638k
admission of with interest still remains.
 Breakdown of outstanding obligation:
respondent’s  Respondent could not give an estimate of how
418k for every bonus, loan, or advance
installment much bonuses and commissions
obtained and deducted.
payments in the  Pay slips did not reflect any deductions for his car
 Jan 22, 1999 letter – Martinez was amount of loan
terminated and demanded that he pay the 230,275k.  Respondent should have insisted that receipts be
outstanding loan + surrender the car 3  That Dy never issued in his favor in the first place
days from receipt denied nor
confirmed in “Even if the parties agreed to make deductions from
 On August 28 1999 – respondent alleged open court the respondent’s salary, bonuses, and commissions, this is only
that he had already paid his loan through authenticity of affirmative of the capacity or ability of respondent to fulfill
deductions made from his her signature in his part in the bargain.”
compensation/salaries, bonuses, and the certificate.
commissions. PROOF:

1. Certification issued by Helen Dy

(president) that respondent already paid
the amount of 337,650k.
CINCO vs. CA  December 1987 – petitioner Manuel Cinco Spouses Go Cinco filed an action Ester countered that WON THE OBLIGATION NO.
obtained a commercial loan in the for specific performance, there was no explicit IS EXTINGUISHED
amount of 700k from respondent Maasin damages, and preliminary agreement with her and Although the SPA was not strictly speaking, a delivery of the
Traders Lending Corp. injunction, claiming that the Manuel that authorized sum of money due to MTLC, the SPA stood as authority to
 The loan was evidenced by  PN + assignment of the proceeds of her to apply the proceeds collect the proceeds of the already-approved PNB loan that
secured by REM over the spouses Go the PNB loan amounted to the of the PNB loan to would constituted as payment of the loan. Had Ester
Cincos’ land and 4 story building payment of the MTLC loan. Manuel’s loan with MTLC. presented the SPA to the bank and signed the release of
 July 16, 1898 – Manuel’s outstanding mortgage, the obligation would have been extinguished.
obligation amounted to 1,071,256.66.  Ester’s refusal to sign the deed  That it was unfair for
 Go Cinco applied for a loan with the PNB of release/cancellation of the spouses to require the  Unjust Refusal to Accept Payment
bank, and offered as collateral the same mortgage and to collect the release of the mortgage Ester’s actions belie her claim as she herself went to PNB to
properties previously mortgaged to MTLC. proceeds of the PNB loan were to MTLC when no actual collect the proceeds.
 PNB approved of the loan application for completely unjustified payment of the loan had
1.3 M; the release of the amount was been made While there was refusal with just cause, it is not equivalent
conditioned on the cancellation of the to payment as the law requires the act of consignation to
mortgage in favor of MTRC. follow the act of tender of payment.
 Manuel went to the house of respondent However, at the very least, this is equivalent of a tender of
Ester Servacio to inform her that there payment; to which the court decides that spouses Go CInco
was money with PNB for payment of his be freed from the obligation to pay interest on the
loan with MTLC. outstanding amount from the time the unjust refusal took
 Ester went to PNB to verify, but bank place .
officers informed her that Manuel had no
pending loan application with them.
 Manuel executed a SPA authorizing Ester
to collect the proceeds of his PNB loan.
 PNB officers said that there was a 1.3 M
loan, but required Ester to first sign a deed
of release/cancellation of mortgage
before they could release the proceeds of
the loan to her.
 Ester, outraged that spouses Go Cinco
used the same properties mortgaged to
MTLC as collateral, refused to sign the
deed and did not collect the 1.3 M loan
proceeds.
 Ester then instituted foreclosure
proceedings against the spouses Go Cinco
GUMABON vs. PNB  In 2001 – Anna Marie, together with her Anna Marie contended that: PNB contended that: WON ANNA MARIE IS YES.
mother and siblings deposited with the 1. PNB’s refusal to pay her 1. She is not ENTITLED TO THE
PNB Delta Branch: $10,945.28 and time deposits is contrary entitled to the PAYMENT OBLIGATION PNB failed to establish the fact of payment to Anna Marie
$16,830.91 (evidenced by Foreign to law alleged balance in FXCTDs and SA.
Exchange Certificates of Time Deposits). 2. PNB had already of 250k (PNB’s 1. RTC denied the admission of the manager’s check
 Anna Marie decided to consolidate the 8 acknowledged the miscellaneous and the miscellaneous ticket since the original
savings accounts to withdraw 2.7M from account’s balance in the ticket and copies were never presented. The PNB cannot
the consolidated savings account to help Deed of Waiver and manager’s check substitute the mere photocopies of the subject
her sister’s financial needs Quitclaim as evidence) documents for the original copies.
 When she went to the bank on 2003, she 3. That PNB presented no 2. Not entitled to 2. The PNB clearly admitted in the executed Deed of
was informed that she could not withdraw concrete proof that this receive the Waiver and Quitclaim that it owed Anna Marie
from the savings accounts since her bank amount had been $10,058 covered 2.7M under the consolidated savings account, and
records were missing + Salvoro could not withdrawn by FXCTD as that there was a remaining balance of 250k. Hence,
be contacted. 4. She likewise argued that based on their this is proof that the obligation to pay the remaining
 Afterwards, PNB finally consolidated the the best evidence of her records, she pre- balance subsists.
savings accounts and issued a passbook withdrawals is the terminated such 3. SOA is also inadmissible because it fails to qualify
for Savings Account No. confirming that withdrawal slips signed to purchase a as relevant evidence. It does not show which
the total deposits amounted to 2.7M. by her and the foreign demand amount stated therein came from the funds of
 Remaining balance: 250,741.82. passbooks pertaining to draft. (facsimile Certificate of Time Deposit.
 PNB informed Anna Marie that it refused the accounts, which copy of Anna
to honor its obligation under FXTCD + PNB failed to supply Rose’s SOA) As there were no irregularities on Anna Marie’s certificates
withheld the release of the balance in the 3. She is only to justify the PNB’s refusal to pay the stated amounts, PNB
consolidated savings account because she RTC: ruled in her favor that the entitled to is liable for her claims since it failed to prove that it had
supposedly pre-terminated, withdrew SOA is a mere photocopy and receive already been discharged from its obligation.
and or debited sums against her deposits. that PNB failed to obtain the $10,718.87
 deposition of a PNC Bank instead of the **The bank was also negligent for its failure to update and
officer/other evidence to show full amount of properly handle Anna Marie’s accounts.
that the amounts stated in the $17,235.41
SOA came from the FXCTD. covered in the
 PNB failed to prove the alleged other FXCTD
withdrawals, as these were not because the
reflected at the back of the amounts were
certificate. deducted.

CA: reversed RTC’s ruling,

giving great credence to
the miscellaneous ticket
and manager’s check
  EFFECT OF DEATH
STRONGHOLD
INSURANCE vs.
REPUBLIC ASAHI
  1236 – 1237 EFFECTS OF PAYMENT MADE BY A THIRD PERSON
JALANDONI vs.  Encomienda met petitioner Georgia Jalandoni claims that it was WON JALANDONI IS YES.
ENCOMIENDA Jalandoni in Cebu, becoming close friends never a loan; that these amounts LIABLE TO PAY MONEY
afterwards. were originally intended to be OBLIGATION TO
 March 1997 – Jalandoni called gratuitous. ENCOMIENDA
Encomienda to ask if she could borrow
money for the search and rescue
operation of her children in Manila,
allegedly taken by their father (100k).
 While in manila, Jalandoni again borrowed
money for several errands, amounting to
3.2M. and $6,638.20.
 Encomienda gave Jalandoni 6 weeks to
settle her debts, but no payment was
made.
  1240 TO WHOM PAYMENT SHALL BE MADE
PNB vs. TAN
CULABA vs. CA 
ALLIED BANKING vs.
LIM SIO WAN

DELA CRUZ vs.

CONCEPCION
  1242 – PAYMENT MADE IN GOOD FAITH
NATIONAL POWER  Ibrahim and his co-heirs claimed that they
CORP vs. IBRAHIM were owners of several parcels of land
described in Survey Plan FP, divided into 3
lots.
 In 1978 – NAPOCOR took possession of
the sub-terrain area of their lands and
constructed therein underground
tunnels, which were only discovered
sometime in July 1992
 The subject land, while in truth a portion
of a private estate registered under
respondent Mangondato was occupied by
petitioner under the mistaken belief that
such land is part of the vast tract of public
land reserved for its use by the
government (P No. 1354)
 Shortly after discovery, Mangondato
began demanding compensation for the
subject land from petitioner.
 2 cases were instituted by herein
respondents Ibrahims and Maruhoms
against petitioners. (Civil Case No. 967 –
93)
 Mangondato was made to pay for rental
fees and expropriation indemnity for both
final judgments, which he did.
RTC: required payment of all the
rental fees and expropriation
indemnity due for the subject
land to the petitioners.
 It further held hat both
Mangondato and the petitioner
solidarily liable to the Ibrahims
and Maruhoms for the rental
fees and expropriation
indemnity.
WON PETITIONER IS NO. Petitioner’s previous payment to Mangondato pursuant
LIABLE IN FAVOR OF to the final judgment of Civil Cases may be considered to
THE IBRAHIMS AND have extinguished the former’s obligation regardless of who
MARUHOMS FOR THE turns out to be the real owner of the subject land.
RENTAL FEES AND
EXPROPRIATION 1. If Mangondato is the real owner of the subject land,
INDEMNITY ADJUDGED then the obligation by petitioner to pay is already
FOR THE SUBJECT LAND deemed extinguished by the latter’s previous
payment under final judgment.
2. Even if Ibrahims and Maruhoms turn out to be the
real owners of the subject land, the absence of bad
faith may nonetheless be considered as akin to a
payment made in good faith to a person in
possession of credit (Art. 1242).
 Thus the court finds that Mangondato, being the
judgment creditor in the earlier civil cases as well as the
registered owner of the subject land at the time may be
considered as a “possessor of credit” with respect to the
rental fees and expropriation indemnity adjudged due for
the subject land in the 2 civil cases, if the Ibrahims and
Maruhoms turned out to be the real owners of the subject
land.

ESTANISLAO vs. EAST  July 24, 1997 – petitioners obtained a loan
WEST BANKING from the respondent bank (3.9M) as
evidenced by a PN + two deeds of chattel
mortgage:
1. 2 dump trucks and a bulldozer (2.37M)
2. 1 bulldozer and a wheel loader (1.5M)
 Petitioners defaulted in the amortizations,
which made the obligation due and
demandable
 Respondent bank filed a suit for replevin
with damages, then moved for suspension
of the proceedings on account of an
earnest attempt to arrive at an amicable
settlement.
 During the course of negotiations, a deed
of assignment was drafted by the bank
 7.3 M as loan and assignment of
motor vehicles to the assignee upon full
payment
 Petitioners completed the delivery of the
equipment without protest or objection.
(1st chattel mortgage)
 June 2001 – respondent filed a motion to
admit an amended complaint for the
seizure and delivery of 2 more heavy
equipment (2nd chattel mortgage).
 Respondent claimed that it failed to include
the 2nd deed of CM among the documents
forwarded to its counsel when the original
complaint was being drafted.
 That petitioners were given a chance to
submit a refinancing scheme which would have
allowed them to keep the 2 heavy equipment.
 1245 – DATION IN PAYMENT
Petitioners sought the
dismissal of the amended
complaint, alleging that
their previous payments
on
1. loan
amortizations,
2. execution of the
deed of
assignment
3. and respondents
acceptance of the
3 units of heavy
equipment
had the effect of full
payment.
RTC: ruled in their favor,
justifying that respondent
was estopped from further
collecting from the
petitioners when it
accepted the delivery of
the heavy equipment
without any protest
The amended complaint alleged
that petitioner’s outstanding
indebtedness as of June 14,
2001 was 4.2M, which was more
or less equal to the value of the
2nd CM.
In the event that the 2 heavy
equipment cannot be replevied,
petitioners were to pay 3.8M
with interest per annum.
WON THE DEED OF YES. The deed of assignment was a perfected agreement
ASSIGNMENT AND ITS that extinguished petitioner’s total outstanding obligation to
ACCEPTANCE IS the respondent. As explicitly worded out in the DoA, should
CONSIDERED AS FULL petitioners complete the delivery of the 3 units of heavy
PAYMENT OF THE equipment covered by the deed, respondent’s credit would
PETITIONER’S have been satisfied in full, and petitioner’s indebtedness of
OUTSTANDING 7.3M were to be satisfied as well.
OBLIGATION
The nature of the assignment was a dation in payment. Even
if we were to consider the agreement as a compromise
agreement (no need for respondent’s signature on the
same), the delivery of heavy equipment to which the latter
accepted, consummated the agreement.
**Respondent did not raise any objections or make any
move to question, invalidate, or rescind the deed of
assignment. When respondent accepted delivery of all 3
units, it intended to be bound under the agreement.
**Recovery of heavy equipment was the principal aim of the
suit, as payment of total obligation was merely an alternative
prayer
ONG vs. ROBAN  Petitioner spouses Wilfredo and Edna Ong
LENDING obtained several loans from respondent
corporation (4M). These loans were
secured by a REM on their parcels of land
in Binauganan, Tarlac.
 Petitioners and respondent then executed
an Amendment to Amended REM
consolidating their loans inclusive of
charges which totaled = 5.9M.
 On even date, the parties executed a
Dacion in Payment Agreement to which
they assigned their properties to
respondent in settlement of their total
obligation.
 They also executed a MOA in the same
day, stating that failure by the petitioners
to pay their debt within one year gives
respondent the right to enforce the
Dacion in Payment, transferring to it
ownership of the properties.
 April 2002 – petitioners filed a complaint
for declaration of mortgage contract as
abandoned, annulment of deeds… and
that the MOA and Dacion in Payment
executed are void on the basis of pactum
commissorium.
 Pactum
Commissorium
Petitioners alleged that the
loans extended to them
from July 1999 – March
2000 were founded on
several PNs, provided for
interest rates and
additional charges that
were illegal, iniquitous,
unconscionable, and
hardly allowed any
borrower any chance of
survival in case of default.
 That they had
previously made payments
on their loan accounts, but
because of the illegal
exactions, the total
balance appears not to
have moved at all.
Respondent argues that the
Dacion in Payment Agreement is
lawful and valid, whereby the
debtor-plaintiffs alienate their
property to the creditor-
defendant in satisfaction of their
monetary obligation.
RTC and CA: NO pactum
commissorium
WON THERE WAS NO. The SC finds that the MOA and the Dacion in Payment
DACION EN PAGO or Agreement constitute pactum commissorium, which is
PACTUM prohibited under Art. 2088.
COMMISSORIUM
Elements of PC, which enables the mortgagee to acquire
ownership of the mortgaged property without need of any
foreclosure proceedings
 There is a property mortgaged by way of security
for the payment of the principal obli
 There is a stipulation for automatic appropriation
by the creditor of the thing mortgaged in case of
non-payment
There was no dacion en pago because the alienation of the
properties was by way of security, not by way of satisfying
the debt. The Dacion in Payment did not extinguish the
petitioner’s obligation to respondent. On the contrary, under
the MOA executed on the same day, petitioners had to
execute a PN for 5.9M which they had to pay within one
year.
Respondents, in effect, automatically acquires ownership of
the properties upon petitioner’s failure to pay their debt
within the stipulated period, NOT by way of fulfilling their
obligation.
DAO HENG BANK vs.  Spouses Laigo obtained loans from Dao
LAIGO Heng Bank Inc. in the amount of 11 M, to
secure the payment of which they forged
on 3 REMs covering 2 parcels of land
registered under Lilia’s name.
 The mortgages were duly registered in the
Registry of Deeds, and the loans were
payable within 12 months from the
execution of the promissory notes
covering the loans
 2000 – spouses failed to settle their
outstanding obligation, drawing them to
verbally offer to cede to Dao Heng ½
mortgaged lots by way of dacion en pago.
 Dao Heng demanded the settlement of
their obligation by letter. Outstanding obli:
10.38 M inclusive of interests and other
charges
 Respondents failed to heed to the
demand.
 The properties were then sold for 10.7M
at a public auction to Banco de Oro
Universal Bank as highest bidder.
 Respondents negotiated for the
redemption of the mortgages by letter
 Petitioner bank advised them that the
redemption price shall be 11.5M plus 12%
interest along with other conditions
 Nothing was heard from the respondents,
so petitioner proceeded to consolidate
the titles immediately after the expiration
of the redemption period on Jan. 2002.
 6 days before the expiration of the
redemption period, respondents filed a
complaint for Annulment, Injunction,
with Prayer for TRO, praying that
foreclosure of the subject REMs be
annulled + that they be allowed to deliver
by way of dacion en pago 1 of the
mortgaged properties as full payment.
Petitioner claimed that
there was no meeting of
the minds between the
parties on the settlement
of the respondents’ loan
via dacion en pago.
RTC: granted petitioner’s
motion to dismiss holding
that the claim must be
based on a
document/writing
evidencing the alleged
dacio en pago.
 Further explained that
the delivery of titles were
not pursuant to dacio en
pago, but by reason of the
execution of the mortgage
loan agreement.
Respondents claim that Dao
Heng verbally agreed to enter in
DEP.
** ful settlement of obli: 9 M
 They contend that their
delivery of the titles to the
mortgaged properties
constituted partial performance
of their obligation under the
dacion en pago.
CA: agreed that there was a
cause of action, and that their
agreement fell within the
exceptions provided under Art.
1403 (Statute on Frauds).
 There was partial
performance of the agreement
to settle their obligation via
dacion en pago when they
agreed to have the properties
appraised. (5k as appraisal
expense)
WON THERE WAS A NO.
PERFECTED DACIO EN
PAGO CONTRACT Petitioner’s commissioning of an appraiser to appraise the
value of the mortgaged properties, service, and delivery of
titles do not constitute partial performance.
 Showing that petitioner approved respondents’
proposal to settle their obligation via dacion en
pago
 The delivery of the titles is a usual condition sine
qua non to the execution of the mortgage, for
security and registration purposes
 Their proposal to redeem the mortgages defeats
their claim of an existent dacion en pago
Common consent is an essential prerequisite, be it a sale of
novation, to have the effect of extinguishing a debt or
obligation.
 An “objective novation”, where the common consent of
the parties is required in order to extinguish the obligation.
 The thing is offered as an accepted equivalent of the
performance of an obligation considered as the object of
the contract of sale, while the debt is considered as the
purchase price.
TAN SHUY vs.  Petitioner Tan Shuy is engaged in the  Guillermo countered WON THE YES. The subsequent arrangement between Tan Shuy and
MAULAWIN business of buying copra and corn. that he had already SUBSEQUENT Guillermo can be considered as one in the nature of dation in
(ISSUANCE OF A PESADA) paid the subject loan in ARRANGEMENT payment because:
 Guillermo Maulawin, herein respondent, is full. According to him, BETWEEN TAN SHUY  Partial payment every time Guillermo delivered
a farmer businessman engaged in the he AND GUILLERMO CAN copra to the petitioner, chose not to collect the net
buying and selling of copra and corn.  Continuously delivered THUS BE CONSIDERED proceeds of his copra deliveries, and instead applied
 On July 1997 – Tan Shuy extended a loan and sold copra to AS ONE IN THE NATURE the collectible as installment payments for his loan
to Guillermo (420k). Guillermo obligated petitioner from April OF DATION IN from Tan Shuy.
himself to pay the loan + sell lucad/copra 1988-1999. PAYMENT  Net proceeds = 378,952.; Balance = 41k (- corn)
to the petitioner.  That there was an oral
 Petitioner alleged that despite repeated arrangement that the
demands, Guillermo remitted only 28.5k. net proceeds thereof
He claimed that Guillermo had an shall be applied as
outstanding balance of 391.5k. installment payments
 He then filed a complaint before RTC. for the loan.
 Deliveries = 420,537
worth of copra. (Proof:
copies of padasa issued
by Tan’s children.)
 The pedasas did not
contain the notation
“pd” which meant that
actual payment of the
net proceeds from
copra deliveries was
applied as loan
payment.

RTC: The net proceeds from

Guillermo’s deliveries
represented in the pesadas
would be applied as installment
payments. (balance of 41k).
SERFINO vs. FAR EAST  Petitioner spouses Serfino instituted an
BANK action for collection of sum of money
against spouses Cortez. By way of
settlement, they executed a compromise
agreement (Oct. 1995) in which they
spouses Cortez acknowledged their
indebtedness to the former in the amount
of Php 108,245.
 To satisfy the debt, Magdalena Cortez
bound herself to pay in full the
judgement debt out of her retirement
benefits. (GSIS)
 In case of default, the debt may be
executed against any of the properties of
the spouses Cortez that is subject to
execution.
 155k  197k
 No payment was made as promised.
Godfrey only discovered that Magdalena
deposited her retirement benefits in the
savings account of her daughter-in-law
Grace Cortez, with the respondent.
(245,830k).
 The same day, the spouses Serfino’s
counsel sent 2 letters to FEBTC informing
the bank that the deposit in Grace’s name
was owned by the spouses Serfino. It
requested FEBTC to prevent the delivery of
the deposit to either Grace or spouses
Cortez until ownership has been resolved.
 April 26, 1996 – Grace withdrew 150k
from her savings account.
 Spouses Serfino thus filed a claim for
damages against FEBTC for allowing the
withdrawal of the deposit.
PEN vs. JULIAN  The Julians obtained a loan (60k) from
Spouses Serfino claim that
the deposit consists of
Magdalena’s retirement
benefits, which have been
supposedly assigned to
them under the
compromise judgment +
constructively delivered
by virtue of the public
instruement.
The petitioners allege that
FEBTC insists that they are not
bound by the compromise
judgment, only by its contract of
loan with its depositor. As a
loan, the bank deposit is owned
by the bank, hence, the spouses
Serfino’s claim of ownership
was erroneous.
WON THERE WAS NO. The court finds no basis to support Serfino’s claim of
DACION EN PAGO ownership of the deposit.
Re: Assignment of Credit akin to Dation in Payment
“An assignment of credit is an agreement by virtue of which 
the owner of a credit, known as the assignor, by a legal cause,
such as sale, dation in payment, exchange or donation, and 
without the consent of the debtor, transfers his credit and 
accessory rights to another, known as the assignee, who 
acquires the power to enforce it to the same extent as the 
assignor could enforce it against the debtor. It may be in the 
form of sale, but at times it may constitute a dation in 
payment, such as when a debtor, in order to obtain a release 
from his debt, assigns to his creditor a credit he has 
against a third person.”
 As dation in payment, the assignment of credit operates
as a mode of extinguishing the obligation, as the delivery
and transmission of the credit due from a 3rd person is
ACCEPTED as the equivalent of the performance of the
obligation.
!!! HOWEVER!!! The terms of the Compromise Judgement
did not convey an intent to equate the assignment of
Magdalena’s retirement benefits as the equivalent of
payment of the debt due to the spouses. THERE WAS NO
ASSIGNMENT OF CREDIT, AS THE CJ MERELY IDENTIFIED THE
FUND FROM WHICH THE PAYMENT FOR THE JUDGMENT
DEBT WOULD BE SOURCED.
WON THERE WAS NO. Dacion en pago is in the nature of a sale because

EQUITABLE PCI vs. NG  Oct. 7, 2001 – respondents Ng Sheung
SHEUNG NGOR Ngor, Ken Appliance Division, Inc. and
Benjamin Go filed an action for
annulment and/reformation of
documents and contracts against
petitioner and its employees Aimee Yu and
Bejan Lionel.
 They claimed that Equitable induced them
to avail of its peso and dollar credit
facilities by offering them low interest
rates (accepted + signed bank’s PN’s).
 They however, were unaware that the
documents contained identical escalation
clauses granting Equitable authority to
increase interest rates without their
consent.
 1250 – EXTRAORDINARY INFLATION/DEFLATION
Equitable asserted that Respondents asserted that the WON THERE WAS NO.
respondents knowingly PNs were invalid because they EXTRAORDINARY
accepted all the terms and were contracts of adhesion. DEFLATION “Extraordinary inflation” exists when there is an unusual
conditions contained in the decrease in the purchasing power of currency and such
PNs. decrease could not be reasonably foreseen by the parties at
 That they the time of the obligation.
continuously
availed of and Requisites of Extraordinary inflation/deflation to affect an
benefitted from obligation:
Equitable’s credit  That there was an official declaration of
facilities for 5 extraordinary inflation/deflation from the BSP
years.  That the obligation was contractual in nature
 That the parties expressly agreed to consider the
RTC: upheld the validity of effects of the extraordinary inflation/deflation.
the PNs. It found that in
2001 alone, Equitable TO DISPROVE:
restructured respondent’s  Despite the devaluation of the peso, BSP never
loans amounting to declared a situation of extraordinary inflation.
$228,200 and 1M.  Although the obligation arose out of a contract, the
 invalidated the parties did not agree to recognize the effects of
escalation clause extraordinary inflation/deflation.
 took judicial notice of  RTC never mentioned that there was a such
the steep depreciation of stipulation either in the PN or loan agreement.
the peso during the
intervening period and Therefore, respondents should pay their dollar-denominated
declared the existence of loans at the exchange rate fixed by the BSP on the date of
extraordinary deflation. maturity.
 ordered the use of the
1996 dollar exchange rate
in computing the
respondent’s dollar
denominated loans
ALMEDA vs. BATHALA  In May 1997 – respondent Bathala Petitioners continued to Respondent opposed WON THE AMOUNT OF NO.
MARKETING Marketing Industries Inc, as lessee, make demands for the petitioner’s demand and insisted RENTALS DUE SHOULD
renewed its Contract of Lease with payment of VAT and for that there was no extraordinary BE ADJUSTED BECAUSE Petitioners are estopped from shifting to respondent the
Ponciano as lessor. rental adjustment allegedly inflation. OF EXTRAORDINARY burden of paying the VAT, as it is the lessor who is primarily
 Under said contract, Ponciano agreed to brought about by INFLATION/DEFLATION liable for such payment. Respondent can only be held liable
lease a portion of the Almeda Compound extraordinary  They refused to pay the VAT for new taxes imposed after the effectivity of the contract
inflation/deflation. and adjusted rentals, but of lease (after May 1997) and only if they pertain to the lot
for a monthly rental of 1.1M for a term of
instead continued to pay the and the building where the leased premises are located.
4 years from May 1, 1997 unless sooner
stipulated amount set forth in  RA 7716 took effect in 1994; hence the VAT cannot be
terminated as provided in the contract.
their contract. considered as new tax.
TERMS OF THE CONTRACT:
The factual circumstances of the present case isn’t a case of
 #7 In case of extraordinary inflation/devaluation
extraordinary inflation/devaluation. The SC stresses that the
of Philippine Currency, the value of the Php @ the
erosion of the value of the PHP in the past 3 or 4 decades,
time of the establishment of the obligation shall
starting in the mid-sixties, is characteristic of most
be the basis of payment.
currencies.
 Dec. 1997 letter – advised respondent Such downward trend of the peso cannot be considered as
that the former shall assess and collect the extraordinary phenomenon contemplated by Art. 1250.
VAT on its monthly rentals. Respondent  Official declaration by competent authorities of
contended that VAT may not be imposed the existence of extraordinary inflation during a
because they were supposed to be fixed in given period.
the contract of lease as the contract was
executed when the VAT law had been in
effect.
 Jan. 1998 – respondent received another
letter informing them that its monthly
rentals should be increased to 73%
pursuant to condition #7 of the contract
and Art. 1250.

PREMIERE FIRST LOAN: Respondent Central Surety and
DEVELOPMENT BANK Insurance Company obtained an industrial loan
vs. CENTRAL SURETY (6M) from petitioner bank, evidenced by PN, with a
payment of 17% interest per annum payable
monthly in arrears.
 Should Central Surety fail to pay, it would
be liable to Premiere Bank for:
1. Unpaid penalties up to maturity date
2. Unpaid interest up to maturity date
3. Unpaid balance of the principal
 To secure payment for the loan, Central
Surety executed a Deed of Assignment
with pledge representing its proprietary
share in Wack Wack Gold and Country
Club (membership fee).
SECOND LOAN:
 Central Surety had another commercial
loan with Premiere Bank (40M), evidenced
by PN and secured by REM over
Condominium.
 Premiere Bank sent a letter demanding
payment of the 6M loan.
 Central Surety issued a check in the
amount of 6M + 2.6 = 8.6M
 For undisclosed reasons, Premiere Bank
returned the check and demanded
payment for both loans now, threatening
to foreclose the loans’ respective
securities, pledge, and REM.
 Premiere Bank’s APPLICATION OF
PAYMENTS:
1. It cannot accept 2 checks as full
settlement because amount is insufficient
2. Applied it to 4 other debts it deemed as
more onerous
 1252 – APPLICATION OF PAYMENT
Premiere Bank insisted Central Surety strongly objects WON PREMIER BANK YES. Premier bank is given the right to apply payments.
that the PN covering the to premier bank’s application of CORRECTLY APPLIED
6M loan respecting: payments. It demanded for the SOLELY THE PAYMENTS  Creditor is given the right to apply payments
1. Debts to which application of check payments to AS GRANTED IN THE The debtor’s right to apply payment is not mandatory. This is
payments should the loan covered by PN Nos. PROMISSORY NOTE clear from the use of the word “may” rather than the word
be applied in 714-X and 714-Y (as fully paid) “shall”. This right has been considered as merely “directory”.
cases of several  That the Wack Wack
obligations by an Membership pledge, security for The right of the creditor to apply such payment in case the
obligor and/ the 6M loan be released. debtor fails to direct its application. When the debtor does
debtor not elect to so, he is deemed to have waived his right to
2. The initial  complaint for damages and apply payments.
application of release of security collateral.
payments to **FURTHERMORE, In at least 2 PNs, Central Surety
other costs, CA: held that Premiere Bank’s expressly agreed to grant Premiere Bank the authority to
advances, letter specifically demanding apply and and all of Central Surety’s payments.
expenses, and payment of the 6M loan was
past due interest deemed to have waived the  No Waiver on the Part of Premier Bank when it
stipulation in the PN that specifically demanded payment of the 6M loan.
RTC: ruled that Premiere granted it the right to solely WAIVER CANNOT BE PRESUMED; there must be persuasive
Bank had the right to apply determine the application of evidence to show an actual intention to relinquish the right.
Central Surety’s payment payments Any inference of a waiver is eschewed by the express
to the most onerous provision of the PN that “no failure on the part of PBank in
obligation. exercising any right shall operate as a waiver thereof.
 Erred in applying
the payment to
the loan of Casent
Realty and to the
personal
obligation of
Castaneda
ESPINA vs. CA  Nov. 29, 1991 – Mario Espina (seller) and
Rene Diaz (buyer) executed a Provisional
Deed of Sale, over a condominium unit
worth 100k. This was to be paid through
PCI Bank postdated checks, in the
amounts of 400k, 200k, 200k,200k,200k
 In a letter, petitioner informed respondent
that his checking account with PCI Bank
has been closed.
 January 25, 1992 – petitioner through his
wife, paid private respondent 200k as
partial payment
 Notice of Cancellation
 Despite this notice, Espina still continued
to accept payment from petitioner in the
amount of 100k.
 Espina then filed a complaint for Unlawful
Detainer + refund the balance of 400k
CA: reversed the appealed
decision and dismissed the
complaint for unlawful detainer
 ruled that the payment was
“additional payment” for the
purchase of the property
WON PETITIONER’S NO. Unless the application of payment is expressly
SUBSEQUENT indicated, the payment shall be applied to the obligation
ACCEPTANCE OF THE most onerous to the debtor.
100K EFFECTIVELY
WITHDREW THE In this case, the unpaid rentals constituted the more
CANCELLATION OF THE onerous obligation of the respondent to petitioner. As the
PROVISIONAL SALE payment did not fully settle the unpaid rentals, the action
for ejectment prospers.
Thus, the payment was not an additional payment for the
purchase property. The subsequent acceptance of petitioner
of payment did not effectively withdrew the cancellation of
provisional sale.
TAN vs. CHINA  On several occasions in 1997, petitioner
BANKING Lorenze Realty obtained from China Bank
various amounts of loans and credit
accommodations (71M).
 In the PNs, Lorenze Realty agreed to pay
the additional amount of 1/10 of 1% per
day of the total obligation due as penalty
in case of default.
 Security: REM over 11 parcels of land
 Lorenze Realty then incurred in default in
the payment of its amortization,
prompting China Bank to cause the extra-
judicial foreclosure of the REM after the
latter failed to heed its demand
 Mortgaged properties were sold for 85M,
with China Bank as the highest bidder
 In the Statement of Account, Lorenze
Realty’s indebtedness reached the amount
of 114M. (-85M, 29M as balance)
Officers of the corporation
claimed that they just
signed the surety contracts
without reading the fine
terms stipulated therein
because they were made
the believe by the bank
manager that the
collaterals they offered to
obtain the loans were
already sufficient to cover
the entire obligation
should they incur in
default.
 That they are no longer
liable to pay the deficiency
obligation because the
proceeds (85M) is more
than enough to cover the
principal amount of the
loan.
China Bank initiated an action
for the collection of sum of
money against the petitioner
and its officers. They alleged that
it is entitled to deficiency
judgment because the purchase
price of the securities pledged
by the debtor is not sufficient to
settle the entire obligation.
 That petitioners are liable as
the obligation is not
extinguished by the foreclosure
and sale of real properties (Art.
1253) because in debts that
produce interest payment of
the principal shall not be
deemed to have been made
until the interests have been
covered.
RTC: declared the defendants as
jointly and severally liable for
the 29M balance after deficiency
judgment.
WON CHINA BANK
YES.
CORRECTLY APPLIED
THE PROCEEDS OF THE A debtor, in making a voluntary payment, may at the time of
SALE TO THE INTEREST, payment direct an application of it to whatever account he
INSTEAD OF THE chooses, unless he has assigned or waived that right. If the
PRINCIPAL OBLIGATION debtor does not do so, the right passes to the creditor, who
may make such application as he chooses. But if neither
party has exercised its option, the court will apply the
payment according to the justice and equity of the case,
taking into consideration all its circumstances."
In the event that the debtor failed to exercise the right to
elect the creditor may choose to which among the debts the
payment is applied as in the case at bar. It is noteworthy that
after the sale of the foreclosed properties at the public
auction, Lorenze Realty failed to manifest its preference as
to which among the obligations that were all due the
proceeds of the sale should be applied. Its silence can be
construed as acquiescence to China Bank's application of
the payment first to the interest and penalties and the
remainder to the principal which is sanctioned by Article
1253 of the New Civil Code which provides that:,
“Art. 1253. If the debt produces interest, payment of the
principal shall not be deemed to have been made until the
interests have been covered.”
Nowhere in our statutes and jurisprudence do they provide
that the sale of the collaterals constituted as security of the
obligation results in the extinguishment of the obligation.
The rights and obligations of parties are governed by the
terms and conditions of the contract and not by
assumptions and presuppositions of the parties. The amount
of their entire liability should be computed on the basis of
the rate of interest as imposed by the CA minus the proceeds
of the sale of the foreclosed properties in public auction.

MARQUEZ vs. ELISAN 1st Loan:
CREDIT  Dec. 16, 1991 – petitioner Marques
obtained a loan from respondent Elisan
Credit Co. for 53k payable in 180 days
 Evidenced by a PN + secured by a chattel
mortgage over a motor vehicle
 Both petitioner and respondent
acknowledged the full payment of the 1st
loan
2nd Loan:
 55k evidenced by a PN and a cash voucher
 When the 2nd loan matured, petitioner had MTC: held that the 2nd
only paid 29k  unpaid balance: 25k
 Petitioner asked respondent if he could pay extinguished, as the
in daily installments until the 2nd loan is respondent accepted the
paid (subject to 26% annual interest)
 21 months after maturity, petitioner had
already paid 56k, an amount greater than
the principal
 Despite the receipt of the amount,
respondent filed a complaint for judicial
foreclosure of the chattel mortgage
because the petitioner allegedly failed to
nd
settle the balance of the 2 loan despite
demand
 Respondent prayed that the petitioner be
nd
ordered to pay the balance of the 2 loan
plus accrued penalties and interest
 Before petitioner could answer, respondent
applied for the issuance of a writ of
replevin which seized the motor vehicle
and delivered it to respondent
 ART 1253 – 1254 ABSENCE OF STIPULATION WHERE PAYMENT BE APPLIED
Petitioner insists that his The respondent claims that the WON THERE WAS A NO. Respondent acted pursuant to law and jurisprudence
daily payments should be daily payments were properly WAIVER OF INTEREST when it credited the daily payments against the interest
deemed to have been credited against the interest and AND THAT THE instead of the principal.
credited against the not against the principal because PAYMENT WAS
principal, as the official the petitioner incurred delay in APPLIED/CREDITED TO  The debt produces interest
receipts issued were the full payment of the second THE PRINCIPAL  A portion of the 2nd loan remained unpaid upon
silent with respect to the loan. maturity, and
payment of interest and  The respondent did not waive the payment of
penalties. (ART. 1176 + It argues that pursuant to the interest
ART. 1235) terms and conditions of the
promissory note, the interest and There was no waiver of interest
penalties became due and The fact that the official receipts did not indicate whether
demandable when the petitioner the payments were made for the principal or the interest
loan was fully failed to pay in full upon maturity. does not prove that the respondent waived interest. In the
The respondent relies on Article present case, it was not proven that the respondent
1253 of the Civil Code which accepted the payment of the principal. The silence of the
daily payments made provides that if the debt produces receipts on whether the daily payments were credited
without protest interest, payment of the principal against the unpaid balance of the principal/accrued interest
shall not be deemed to have been does not mean that the respondent waive interest, as there
made until the interests have been is no presumption of waiver of interest without any
covered. evidence showing that the respondent accepted the daily
installments as payments for the principal.
RTC: held that the payment of the
principal shall not be deemed to Furthermore, the PN provided that “interest not paid when
have been made until the interests due shall be added to, and become part of the principal and
have been covered (Art. 1253) shall likewise bear interest at the same rate, compounded
 chattel mortgage was revived monthly.”
when the petitioner executed the
PN covering the 2nd loan

FAR EAST BANK vs.  Aug. 1973 – Diaz and Company got a loan
DIAZ REALTY from former Pacific Banking Corp (720k),
with interest at 12% per annum,  14%,
16%, 18%, and 20%.
 Secured by REM over 2 parcels of land
owned by Diaz Realty
 1981 – Allied Banking Corp. rented an office
space in the building constructed on the
properties covered by the mortgage
contract, whereby the parties agreed that
the monthly rentals shall be paid directly to
the mortgagee for the lessor’s account,
either to partly/fully pay off the mortgage
indebtedness.
 Allied Bank then paid the monthly rentals
to PABC instead of to the plaintiffs.
 Dec. 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
 ART 1256 TENDER OF PAYMENT AND CONSIGNATION
Plaintiff alleged that: TRIAL COURT: Yes, there was a WON THERE WAS A YES. True, jurisprudence holds that, in general, a check does
1. The FEBTC valid tender of payment VALID TENDER OF not constitute legal tender, and that a creditor may validly
cashier Ramon (1,450,000) made by Diaz Realty PAYMENT TO refuse it.12 It must be emphasized, however, that this dictum
Lim told him that Inc in favor of FEBTC. EXTINGUISH THE does not prevent a creditor from accepting a check as
his loan was OBLIGATION OF THE payment. In other words, the creditor has the option and
1,445.142.03 CA: reasoned that petitioner failed RESPONDENT the discretion of refusing or accepting it.
2. That Diaz asked to effectively rebut respondent’s
the defendant to evidence that is so tendered the "In the present case, petitioner bank did not refuse
check to liquidate its
make an respondent's check. On the contrary, it accepted the check
indebtedness, and that the
accounting of which, it insisted, was a deposit. As earlier stated, the check
petitioner had unilaterally treated
the monthly proved to be fully funded and was in fact honored by the
the same as deposit
rental payments drawee bank. Moreover, petitioner was in possession of the
made by the money for several months.
Allied Banking
3. That on Dec. 14,
1988 Diaz When petitioner refused to release the mortgage,
tendered to respondent instituted the present case to compel the bank
FEBTC the to acknowledge the tender of payment, accept payment and
amount of cancel the mortgage. These acts demonstrate respondent's
1,450,000 intent, ability and capability to fully settle and extinguish its
through an obligation to petitioner.
Interbank check
4. That FEBTC did
not accept it as Respondent’s subsequent withdrawal of the money from
payment petitioner bank is of no moment because such withdrawal
would not affect the efficacy or the legal ramifications of the
tender of payment. As already discussed, the tender of
 That the CA erred in payment to settle respondent's obligation as computed by
upholding the validity of petitioner was accepted, the check given in payment thereof
the tender of payment converted into money, and the money kept in petitioner's
made. What the latter possession for several months.
had tendered to settle
was
Proper Consignation is not needed for Tender of Payment
to extinguish the obligation because 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.

PABUGAIS vs.  On Dec. 3, 1993 – petitioner Teddy Petitioner claimed that: Respondent claimed that: WON THERE WAS A YES.
SAHIJWANI Pabugais, pursuant to an Undertaking 1. Twice rendered 1. They received the letter VALID TOP AND  While it is true that in general, a manager’s check is
Agreement, in consideration of the the amount of but claimed no check CONSIGNATION; not legal tender, the creditor has the option of
amount of 15M agreed to sell to 672,900.00 appended to & refusing or accepting it. Payment in check by the
respondent Sahijwani a lot located at (option/reserva computation of the WON PETITIONER CAN debtor may be acceptable as valid if no prompt
Forbes Park tion fee plus amount to be tendered WITHDRAW THE objection to said payment is made. Consequently,
 Respondent paid the petitioner 600k as 18% interest) to was insufficient AMOUNT CONSIGNED petitioner’s tender of payment in the form of a
petitioner in the AS A MATTER OF manager’s check is thus, valid.
option/reservation fee + the balance of
form of FEBTC TRIAL COURT: rendered a decision RIGHT
14M to be paid from the execution of the
Manager’s Check that declared consignation as The manager’s check which was tendered but refused by
contract simultaneous to the delivery of
but was refused invalid for failure to prove that respondent, and thereafter consigned with the court, was
the documents
acceptance petitioner tendered payment to enough to satisfy the obligation.
 Parties further agreed that failure on the
2. First – respondent and that the latter
part of respondent to pay the balance of  There is valid consignation, there being a valid
messenger refused to receive the same
the purchase price entitles petitioner to tender of payment in an amount sufficient to
3. Second – DHL
forfeit the option/reservation fee + non- extinguish the obligation
Worldwide
delivery of the necessary documents  The amount consigned can no longer be withdrawn
Services
obliges him to return the said reservation by petitioner because respondent prayer in his
4. Written letter
fee w/ interest of 18% per annum answer that the amount consigned be awarded to
saying that he
 Petitioner failed to deliver the required was consigning him is equivalent to an acceptance of the
documents so he returned to respondent the amount consignation.
the option/reservation fee by way of FEBTC tendered w/ RTC 1. Withdrawal of the money consigned would enrich
company checks which were dishonored. petitioner and unjustly prejudice respondent
CA: declared the 2. Withdrawal of the amount deposited in order to pay
 consignation as valid as it Atty. De Guzman violates Art. 1491
extinguished petitioner’s 3. The grant of withdrawal could be sanction to a void
obligation to return the contract.
option/reservation fee,
hence, petitioner can no
longer withdraw the same

BENOS vs. LAWILAO  Feb 11, 1999 – petitioner spouses Benos Benos spouses argue that Lawilao spouses then filed with WON THE LAWILAO NO.
and respondent spouses Lawilao executed consolidation is not the Municipal Circuit Trial Court SPOUSES MADE A
a Pacto de Retro Sale covering the sale of proper because: for consignation against the bank VALID TENDER OF No notification was made to the Benos Spouses of the
the Benos spouses’ lot for 300k, ½ to be 1. Lawilao spouses + simultaneously deposited the PAYMENT AND petition for consignation and offer to pay
paid in cash to the Benos spouses, and ½ violated the amount of 159k CONSIGNATION OF Although the Lawilao spouses had repeatedly alleged that
to be paid to the bank to pay off their loan terms of the THE BALANCE the amount of 159k was still with the trial court which the
secured by the same lot and building contract by not 1. that the Pacto de Retro PURCHASE PRICE creditor spouses could withdraw anytime, they never made
 Under the contract, the Benos spouses paying the bank Sale reflected the parties’ WHEN THEY OFFERED any step to withdraw the amount and thereafter consign it.
loan true agreement TO PAY THE LOAN TO
could redeem the property within 18
2. And thus they 2. that the agreemend of THE BANK
months from date of execution by Compliance with the requirements of tender and
returning the contract price, otherwise the cannot insist on the sale was a right of consignation to have the effect of payment are mandatory.
sale would become irrevocable without the performance repurchase Thus –
the necessity of a final deed to consolidate thereof 3. that they complied with
3. The contract was their obligation when “Tender of payment” is the manifestation by
ownership over the property in the name
actually an they offered to pay the debtors of their desire to comply with or to pay their
of the Lawilao spouses.
equitable loan to the bank and obligation. If the creditor refuses the tender of
 After paying 150k, Lawilao spouses payment without just cause, the debtors are
immediately took possession of the mortgage filed a petition for
discharged from the obligation by the consignation
property and leased out the building 4. Respondent- consignation
of the sum due. Consignation is made by depositing
 INSTEAD of paying the loan to the bank, spouses’ remedy
the proper amount to the judicial authority, before
Janice Lawilao restructured it twice, which should have
whom the tender of payment and the
eventually became due and demandable been for the
announcement of the consignation shall be proved.
recovery of the
 A son of the Benos spouses paid the bank
loan/foreclosure
All interested parties are to be notified of the
159k (principal w/ interest) consignation. Compliance with these requisites is
of mortgage
 On the same day, the Lawilao spouses went mandatory.
to the bank and offered to pay the loan but
the bank refused to accept payment
In the instant case, records show that the Lawilao spouses
filed the petition for consignation against the bank in Civil
Case No. 310 without notifying the Benos spouses. The
petition was dismissed for lack of cause of action against the
bank. Hence, the Lawilao spouses failed to prove their offer
to pay the balance of the purchase price and consignation.
In fact, even before the filing of the consignation case, the
Lawilao spouses never notified the Benos spouses of their
offer to pay.
Thus, as far as the Benos are concerned, there was no full
and complete payment of the contract price, which gives
them the right to rescind the contract (Art. 1191 and 1592)
CACAYORIN vs. AFP  Petitioner Oscar Cacayorin filed an
application with AFPMBAI to purchase a
piece of property with the latter owned
through a loan facility.
 July 1994 – Oscar and his wife Thelma
(borrowers) + Rural Bank of San Teodoro
(lender) executed a Loan and Mortgage
Agreement under the auspices of PAG-
IBIG/ Home Development Mutual Fund’s
Home Financing Program
 Rural Bank then issued a letter of guaranty
informing AFPMBAI that the proceeds of
petitioner’s approved loan (77k) shall be
released to AFPMBAI after title to the
property is transferred in petitioner’s
name & after the registration and
annotation of the parties’ mortgage
agreement
 AFPMBAI then executed a Deed of
Absolute Sale in petitioner’s favor + new
title in their name
 Unfortunately, the PAG-IBIG loan facility did
not push through and the Rural Bank
closed and was placed under receivership
 AFPMBAI took possession of petitioner’s
loan documents and TCT
 Petitioners were unable to pay the
loan/consideration for the property
 AFPMBAI then made oral and written
demands for petitioners to pay the loan
Petitioners filed a AFPMBAI filed a motion to dismiss WON THIS IS A CASE YES. This is a situation where the creditor is unknown, or
complaint for claiming that Petitioner’s FOR CONSIGNATION that 2 or more entities appear to possess the same right to
consignation of loan complaint is within the jurisdiction collect.
payment, recovery of of the HLURB and not of the RTC.
Under the circumstances, they do not know which of the two
title, and cancellation of
– the Rural Bank or AFPMBAI – should receive full payment
mortgage annotation  It added that since no prior
of the purchase price, or to whom tender of payment must
valid tender of payment was
validly be made.
 alleged that as a result made by petitioners, the
of the Rural Bank’s consignation case was fatally
closure and that their defective and susceptible to Applying Art. 1256, the Court finds that a case for
loan papers cannot be dismissal consignation has been made out as it now appears that
located, they were left in there are 2 entities which petitioners must deal with in
a quandary as to where CA: this was a case for specific order to fully secure their title to the property:
they should tender full performance, and should be 1. The Rural Bank – apparent creditor under the Julay
payment of the loan and within the jurisdiction of HLURCB 1994 Loan and Mortgage agreement
how to secure 2. AFPMBAI - currently in possession of the loan
cancellation of the documents and the certificate of title
mortgage annotation
Consignation is necesasarily judicial; hence, jurisdiction lies
RTC: ruled that it had with the RTC, not HLURB.
jurisdiction over the case
While it may be true that petitioners’ claim relates to the
because it involved the
terms and conditions of the sale of AFPMBAI’s subdivision
consignation of loan
lot, this is overshadowed by the fact that since the Complaint
payments
in Civil Case No. 3812 pleads a case for consignation, the
HLURB is without jurisdiction to try it, as such case may only
be tried by the regular courts.
PHILIPPINE  May 10, 2000 - Respondent Lilibeth Chan
NATIONAL BANK vs. leased her 3-story commercial building to
CHAN petitioner PNB for a period of 5 years
(1999-2004) with a monthly rental of 76k.
 When the lease expired, PNB continued to
occupy the property on a month-to-month
basis with a monthly rental of 116k.
 PNB vacated the premises on March 2006
 Jan. 2002 – respondent obtained a 1.5M
loan from PNB secured by a REM over the
leased property (due and demandable in
Oct. 2004)
 Deed of Assignment over rental payments
  7.5M loan increased
 PNB and respondent executed an
Amendment to the REM by Substitution of
Collateral
 Respondent then filed a Complaint for
Unlawful Detainer alleging that PNB failed
to pay its monthly rentals (Oct. 2004 – Aug.
2005)
 PNB claimed that it applied the rental
proceeds (Oct 2004 – Jan 2005) as
payment for respondent’s outstanding
loan
 As for the monthly rentals from Jan 16,
2004 – Feb 2006, PNB explained that it
received a demand letter from Lamberto
Chua who claimed to be the new owner of
the leased property and requested that the
rentals be paid directly to him. Hence, PNB
deposited the rentals in a separate non-
drawing savings account for the benefit of
the rightful party
 METC held a hearing where the parties
agreed to apply the rental proceeds to
respondent’s outstanding loan. PNB
consigned this amount (1.3M) with the
court
PNB insisted that METC: ordered PNB to pay
respondent is not entitled respondent the accrued rentals
to the disputed rental
proceeds as it should be  Respondent filed a
applied to offset the Memorandum claiming that PNB
respondents’ outstanding had no right to retain the 1.3M
loan consigned with the court as her
loan was fully pad when PNB
 foreclosure bought the mortgaged property
proceedings over the
mortgaged property; PNB RTC found that respondent’s
as highest bidder obligation to PNB has already been
paid
 that PNB incurred delay when
despite demand, it refused to pay
and vacate the premises
CA: as of the legal interest, CA
noted that PNB merely opened a
non-drawing savings account
where it deposited the monthly
rentals from Jan 2005 – Feb 2006
(not consignation contemplated
by law)
WON PNB PROPERLY NO. Failure in any of the requirements is enough ground to
CONSIGNED THE render a consignation ineffective.
DISPUTED RENTAL
PAYMENTS IN THE
REQS of a valid consignation:
AMOUNT OF 1.3M
WITH THE OFFICE OF 1) there was a debt due;
THE CLERK OF COURT 2) valid prior tender of payment, unless the consignation was made
OF THE METC because 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:45
PNB's deposit of the subject monthly rentals in a non-
drawing savings account is not the consignation
contemplated by law, precisely because it does not place the
same at the disposal of the court.51 Consignation
is necessarily judicial; it is not allowed in venues other than
the courts.52 Consequently, PNB's obligation to pay rent for
the period of January 16, 2005 up to March 23, 2006
remained subsisting, as the deposit of the rentals cannot be
considered to have the effect of payment.
It is important to point out that PNB's obligation to pay the
subject monthly rentals had already fallen due and
demandable before PNB consigned the rental proceeds with
the MeTC on May 31, 2006. Although it is true that
consignment has a retroactive effect, such payment is
deemed to have been made only at the time of the
deposit of the thing in court or when it was placed at the
disposal of the judicial authority.53 Based on these premises,
PNB's payment of the monthly rentals can only be
considered to have been made not earlier than May 31,
2006.
Given its belated consignment of the rental proceeds in
court, PNB clearly defaulted in the payment of monthly
rentals to the respondent for the period January 16, 2005 up
to March 23, 2006, when it finally vacated the leased
property,
  ART 1266-1267 DOCTRINE OF UNFORESEEN EVENTS IN OBLIGATIONS TO DO
PHILIPPINE  On Nov. 1985 – petitioner PNCC and private Petitioner appealed to the RTC: rendered a decision ordering WON PETITIONER NO. Under the principle of rebus sic stantibus, the parties
NATIONAL respondents entered into a contract of CA against RTC’s decision petitioner to pay private MAY BE RELEASED
stipulate in the light of certain prevailing conditions, and
CONSTRUCTION vs. lease on an undivided portion of 30,000 1. That the respondents 492k (rentals for 2 FROM ITS OBLIGATION
once these conditions cease to exist.
CA s.m of a parcel of land owned by private industrial years + legal interest)
respondents clearance is a  Art. 1266 cannot apply because the provision only
suspensive applies in obligations to do, not to give. (Obligations
CONTRACT STIPULATIONS condition to pay rentals/deliver the thing in a contract of lease
1. Shall be for a period of 5 years without which is an obligation to give)
2. Lessee shall pay rent at the monthly rate of the rights under
 The unforeseen event and causes mentioned are
20,000 php to be increased yearly by 5% the lease
not the legal or physical impossibilities
contract would
3. The rent shall be paid yearly in advance by contemplated in the provision. Petitioner failed to
not be effective;
the lessee state specifically the circumstances brought about
and petitioner
4. The property shall be used as the site, by “the abrupt change in the political climate in the
could not be
grounds, and premises of a rock crushing country”.
compelled to
plant and mutual field office
perform its  Rebus sic stantibus because the parties to the
5. Thee lease may be terminated by mutual
obligation under contract must be presume to have assumed the
agreement of the parties
the contract risks of unfavorable developments. It is only in
 Jan 1986 –petitioner obtained from the 2. That there was absolutely exception changes of circumstances that
financial as well equity demands assistance for the debtor.
Ministry of Human Settlements a
Temporary Use Permit to be valid for 2 as technical  In this case, it is a matter of record that petitioner PNCC
years difficulties entered into a contract with private respondents on
 Private respondents wrote a letter 3. That the purpose November 18, 1985. Prior thereto, it is of judicial notice that
requesting payment of the first annual of the contract after the assassination of Senator Aquino on August 21,
rental (240k) which was due and payable did not 1983, the country has experienced political upheavals,
until the execution of the contract materialize due turmoils, almost daily mass demonstrations, unprecedented,
to unforeseen inflation, peace and order deterioration, the Aquino trial and
events and many other things that brought about the hatred of people
causes beyond even against crony corporations. On November 3, 1985, Pres.
its control due Marcos, being interviewed live on U.S. television announced
to the abrupt that there would be a snap election scheduled for February
change in the 7, 1986.
political climate
and EDSA On November 18, 1985, notwithstanding the
revolution above, petitioner PNCC entered into the contract of lease
(REBUS SIC with private respondents with open eyes of the
STANTIBUS) deteriorating conditions of the country.
MAGAT, JR. vs. CA  1972 – Guerrero Transport Services (GTS)
won a bidding to operate a fleet of
taxicabs with Subic Naval Base. As the
highest bidder, Guerrero (President and
Chairman), was to provide “radio-
controlled taxi service within the U.S. Naval
Base, Subic Bay, utilizing as demand
requires . . . 160 operational taxis consisting
of four wheel, four-door, four passenger,
radio controlled, meter controlled, sedans,
not more than one year” . . .
 Sept 22, 1972 – LOI No. 1, Seizure and
control of all privately owned newspapers,
magazines, radio and television facilities,
and all other media of communication for
the prevention and propaganda actions
against the government
 Guerrero and Magat (General Manager of
Spectrum Electronic Laboratories) executed
a letter-contract for the purchase of
transceivers at a price of $77k. Victorino
was to deliver the transceivers within 60-90
days after receiving notice from Guererro of
the assigned radio frequency.
 Magat then contacted his Japanese supplier
and placed an order for transceivers
 Sept 25, 1972 – Administrative Circular no.
4, Suspending the acceptance and
processing of applications for radio station
construction permits and for permits to
own and/or possess radio transmitters or
transceivers (suspending the sale)
 The permit to import transceivers was
therefore denied, and Guererro was
unable to obtain the necessary letter of
credit. Guerrero commenced operation of the
taxi cabs within Subic Naval Base, using radio
units borrowed from the U.S. government
Victorina filed for a CA: declared the contract void ab WON THE CONTRACT
NO. Nowhere in the LOI and Admin. Circular is there an
complaint for damages initio, as the importation of the BETWEEN VICTORINO
express ban on the importation of transceivers.
arising from breach of transceivers was contrary to law, AND GUERRERO FOR
contract hence, the nullity of the contract THE PURCHASE OF
RADIO TRANSCEIVERS
The contract remains valid
WAS VOID
The LOI and Administrative Circular did not render "radios
and transceivers" illegal per se. The Administrative Circular
merely ordered the Radio Control Office to suspend the
"acceptance and processing . . . . of applications . . . for
permits to possess, own, transfer, purchase and sell radio
transmitters and transceivers . . . "41 Therefore, possession
and importation of the radio transmitters and transceivers
was legal provided one had the necessary license for
it.42 Transceivers were not prohibited but merely regulated
goods. The LOI and Administrative Circular did not render
the transceivers outside the commerce of man. They were
valid objects of the contract.43
There was no breach of contract
Guerrero testified that a permit to import the transceivers
from Japan was denied by the Radio Control Board. He
stated that he, together with Aligada, Victorino and a certain
John Dauden personally went to the Radio Control Office,
and were denied a permit to import. They also went to the
Office of the President, where Secretary Ronaldo B. Zamora
explained that radios were "banned like guns because of
martial law."44 Guerrero testified that this prevented him
from securing a letter of credit from the Central Bank. 45 This
testimony was not rebutted.
The law provides that "[w]hen the service (required by the
contract) has become so manifestly beyond the
contemplation of the parties, the obligor may also be
released therefrom, in whole or in part." 46 Here, Guerrero's
inability to secure a letter of credit and to comply with his
obligation was a direct consequence of the denial of the
permit to import. For this, he cannot be faulted.
TAGAYTAY REALTY CO  Sept 1976 – respondent entered into a Petitioner contended that Respondent sued petitioner for WON PETITIONER IS
NO. Petitioner did not comply with its legal obligation to
vs. GACUTAN contract to sell with the petitioner for the it should be excused from specific performance, praying that JUSTIFIED IN ITS NON-
complete the construction of the subdivision project,
purchase on installment of a residential lot performing its petitioner be ordered to accept his FULFILLMENT OF THE
including amenities.
then being developed by petitioner (Foggy obligations (Art. 1267). It payment of the balance without OBLIGATION DUE TO
Heights Subd) contended that interest and penalty + deliver him FORTUITOUS EVENT
 Earlier on June, petitioner undertook an 1. the depreciation the title of the property
It unilaterally opted to suspend the construction of the
of the Php since
express undertaking in favor of respondent amenities to avoid incurring maintenance expenses. (Desire
the time of the
affirming that they will complete the to benefit from cost savings)
execution of the
development of the roads, curbs, gutters,
contract
drainage system, water and electrical
2. the increase in
systems, amenities to be introduced REQS of Art. 1267
the cost of labor
within 2 years. It also states that failure on
and construction  the event or change in circumstances could not have
their part to complete within the period
materials been foreseen at the time of the execution of the
shall give the vendee the option to
3. the increase in contract
suspend the payment of the monthly
the value of the
amortization on the lots he/she purchased  It makes the performance extremely difficult but not
lot in question
until completion of such development impossible
4. buyers had not
 In case of any force majeure/fortuitous constructed  It must not be due to the act of any of the parties
event, or any restriction by the their houses in
government, it will suspend the 2 year  The contract is for a future prestation
the subdivision
period and the running shall resume upon were valid justifications
the cessation of the cause of stoppage for its release from the
 Nov. 1979 – respondent notified that he DISPROVED:
obligation to construct
was suspending his amortizations because the amenities.  MERE INCONVENIENCE, UNEXPECTED
the amenities had not been constructed in IMPEDIMENTS, OR INCREASED EXPENSES DID NOT
accordance with the undertaking SUFFICE TO RELIEVE THE DEBTOR FROM A BAD
 Petitioner did not reply, instead, he sent BARGAIN.
him a statement of account demanding
 THE UNILATERAL SUSPENSION OF THE
payment for the price, interest and penalty
CONSTRUCTION HAD PRECEDED THE WORSENING
OF ECONOMIC CONDITIONS IN 1983
 LEGAL OBLIGATION TO COMPLETE AMENITIES
WITHIN ONE YEAR FROM THE ISSUANCE OF THE
LICENSE (sec. 20 of PD 957)

BPI vs. CA  Sept 25, 1985 – Private respondent Edvin
Reyes opened a “joint AND/OR” Savings
Account with his wife Sonia at petitioner
bank (BPI)
 Reyes also held a joint AND/OR Savings
Account with his grandmother Emeteria.
He regularly deposited in this account the
US Treasury Warrants payable to the order
of Emeteria as her monthly pension
 Emeteria died on Dec. 28, 1989 without
the knowledge of the US Treasury
Department
 US Treasury Warrant still sent her the
amount of $377/10.5k php
 Edvin deposited such check in his savings
account with Emeteria. The check was
conditionally cleared then sent to US for
further clearing
 Two months after, Edvin closed the savings
account and transferred its funds (13k) to
the joint account with his wife
 Jan 16, 1991 – US Treasury Warrant No.
21665302 was dishonored as Emeteria
died 3 days prior to its issuance. The US
Treasury dept requested petitioner bank
for a refund
 Feb 1991 – When informed that the
treasury check was the subject of a claim
by Citibank NA, he verbally authorized the
bank to debit from his other joint account.
 Petitioner bank debited the amount from
private respondent’s joint savings account
 Feb 21, 1991 – private respondent
demanded restitution of the debited
amount, as he claims that because of the
debit, he failed to withdraw his money
when he needed them
 ART 1279-1290 COMPENSATION
Petitioner averred that CA: held that petitioners credit WON BPI HAS THE
YES. The respondent court erred when it failed to rule that
Edvin gave them the private respondent’s amount RIGHT TO APPLY
legal compensation is proper.
express verbal (10.5k) w/ interest LEGAL
authorization to debit COMPENSATION
the questioned amount
Legal compensation operates even against the will of the
interested parties & even without the consent of them. Its
RTC: dismissed the
effects arise on the very day on which all its requisites
complaint for lack of
concur.
cause of action
The elements of legal compensation are all present in the
case at bar.
 Obligors bound principally are at the same time
creditors of each other
 Petitioner bank stands as a debtor of the private
respondent (depositor)
 At the same time, bank is the creditor of private
respondent with respect to the dishonored US
Treasury Warrant
 Debts consist of a sum of money
 They are due, liquidated, and demandable
 Not claimed by a 3rd person
Re: Presence of the Wife not negating the element of
mutuality of parties (creditors and debtors of their own
right)
 As she is not a party in the case at bar, has never
asserted any right to the debited US Treasury Warrant, then
the right of the petitioner bank to make the debit is clear and
cannot be doubted. To frustrate the application of legal
compensation on the ground that the parties are not all
mutually obligated is UNJUST ENRICHMENT. The rule as to
mutuality is not strictly applied in equity, where to allow
the same would defeat a clear right/permit injustice.
PNB vs. CA
 The defendant appropriated the amounts
of $2,627.11 and P34,340 from remittances
of plaintiff’s principals abroad.
 The first remittance was made by the NCB
of Jeddah for the benefit of the plaintiff;
The second was from Libya and was
intended to be deposited at the plaintiff’s
account with the defendant
 The plaintiff made a written demand for
the remittance of $2,627.
 It was claimed that on Nov. 1980 and Jan
1981, plaintiff’s account was doubly
credited with $5,678.23 & $5,885.38
respectively = P87,380.44. Defendant
claims that plaintiff’s claim has prescribed
 PNB made a written demand for refund of
the duplicated credits made erroneously
on the plaintiff’s account (Oct. 23, 1986).
 The deduction of –P34,340.59 was made by
the defendant with the knowledge and
consent of the plaintiff who issued a receipt
PNB maintains that it RTC:
validly retained the  Reqs 2-5 of ART. 1279 are
$2,627.11 in payment of complied with
private respondent’s  But the parties are not
indebtedness by way of both principally bound
compensation/set off w/ respect to the
$2,627.11 from Jeddah
 Neither are they at the
same time the principal
creditor of each other
 They are debtor and creditor
only with respect to the double
payments, but are trustee-
beneficiary as to the fund transfer
of $2,627.11
 Only the plaintiff is principally
bound as debtor to the extent of
the double credits; defendant is an
implied trustee who was obliged
to deliver the sum to Citibank
INSOFAR AS THE AMOUNT OF
P34,340.38 is concerned, Legal
Compensation may apply as all
the requisites are present (only
partial w/respect to plaintiff’s
P7,380.44 indebtedness)
CA: rejected petitioner’s
argument, ruling that there was
no creditor-debtor relationship
created as the telegraphic money
transfer presupposes a creditor-
debtor relationship between the
PNB and Citibank.
WON THE PETITIONER
NO. Although petitioner implicitly admits the correctness of
WAS LEGALLY
the respondent court’s affirmance of the RTC’s ruling as legal
JUSTIFIED IN MAKING
compensation could not take place due to the non-existence
THE COMPENSATION
of all the requisites, it adopts a novel theory:
AGAINST THE 2
REMITTANCES IN  “That since private respondent is an obligor of PNB and
FAVOR OF PRIVATE the latter has become an obligor of private respondent,
RESPONDENT, BASED then the CA should have ordered private respondent to pay
ON THE PRINCIPLE OF PNB what was bound by the RTC’s decision to return to the
SOLUTION INDEBTI former.
A Mockery of the Entire Judicial Process
What the petitioner bank is effectively saying is that since
the respondent Court of Appeals ruled that petitioner
bank could not do a shortcut and simply intercept
funds being coursed through it, for transmittal to another
bank, and eventually to be deposited to the account of an
individual who happens to owe some amount of money to
the petitioner, and because respondent Court order
petitioner bank to return intercepted amount to said
individual, who in turn was found by the appellate Court to
be indebted to petitioner bank, THEREFORE, there must now
be legal compensation of the amounts each owes the other,
and hence, there is no need for petitioner bank to actually
return the amount, and finally, that petitioner bank ends up
in exactly the same position as when it first took the
improper and unwarranted shortcut by intercepting the said
money transfer, notwithstanding the assailed Decision saying
that this could not be done!
We see in this petition a clever ploy to use this Court to
validate or legalize an improper act of the petitioner bank,
with the not impossible intention of using this case as a
precedent for similar acts of interception in the future.
EGV REALTY vs. CA  Petitioner EGV Realty – owner of a 7 story
condo building (Cristina Condominium).
Christiana Condominium Co. – holds title to
all common areas of CC and is in charge of
managing, maintaining, and administering
the building’s security
 Respondent Unisphere International, Inc. –
owner/occupant of Unit 301
 November 28, 1981 – Unit 301 was
allegedly robbed of various items valued
at P6,165.00
 July 25, 1982 – another robbery allegedly
occurred, items valued at P6,130.00 (total
= P12,295
 Respondent Unisphere demanded
compensation and reimbursement for the
losses as a result of the robbery to
petitioner CCC
 Petitioner CCC denied any liability for the
losses claiming that the goods lost
belonged to Amtrade, a 3rd party
 Petitioner CCC demanded payment of past
dues to responden Unisphere
 Dec. 5, 1984 – EGV Realty executed a Deed
of Absolute Sale over Unit 301 
Condominium Cert. of Title then issued in
respondent Unishphere’s name bearing
the annotation of a lien in favor of
petitioner EGV Realty for the unpaid
condominium dues (13, 142)
 EGV realty and CCC jointly filed a petition
with SEC for the collection of the unpaid
monthly dues
Petitioners assert that the
CA ruling to offset the
alleged losses is
unfounded because
respondent Unisphere is
not the owner of the
goods lost, but a third
party Amtrade.
Unisphere alleged that it cannot
be deemed in default in the
payment of unpaid dues because
its tardiness was occasioned by
petitioner’s failure to provide
security to prevent the robberies
from taking place (Art. 1170)
SEC: ordered respondent to pay
the sum of 13k, and ordered
petitioner to pay respondent the
sum of 12k
CA: held that Unisphere is hereby
ordered to pay CCC the amount of
P847 representing the balance
after offsetting the amounts with
12% interest per annum
WON THE
NO.
COMPENSATION HAS
TAKEN PLACE While respondent Unisphere does not deny its liability for its
unpaid dues to petitioners, the latter do not admit any
responsibility for the loss suffered by the former
occasioned by the burglary. At best, what respondent
Unisphere has against petitioners is just a claim, not a debt.
Such being the case, it is not enforceable in court. It is only
the debts that are enforceable in court, there being no
apparent defenses inherent in them.9 Respondent
Unisphere's claim for its loss has not been passed upon by
any legal authority so as to elevate it to the level of a debt.
Debt vs. Claim
So we held in Alfonso Vallarta v. Court of Appeals, et
al., 10 that:
For compensation to take place, a distinction must be made
between a debt and a mere claim. A debt is a claim which
has been formally passed upon by the highest authority to
which it can in law be submitted and has been declared to
be a debt. A claim, on the other hand, is a debt in embryo. It
is mere evidence of a debt and must pass thru the process
prescribed by law before it develops into what is properly
called a debt. 11
Tested by the foregoing yardstick, it has not been sufficiently
established that compensation or set-off is proper here as
there is lack of evidence to show that petitioners E.G.V.
Realty and CCC and respondent Unisphere are mutually
debtors and creditors to each other.
METROPOLITAN  Spouses Tonda applied for and were
BANK vs. TONDA granted commercial letters of credit by
Metropolitan Bank for a period of 8 mos
(June 1990 – Feb 1991) for the importation
of raw textile materials to be used in the
manufacturing of garments
 The Tondas executed 11 trust receipts to
secure the release of the raw materials to
the HTAC
 Value of imported fabrics: P2,803,000.00
was withdrawn by HTAC under the 11 trust
receipts executed
 Due to their failure to settle their
obligations under the trust receipts upon
maturity, METROBANK sent a letter
making its final demand to settle their
accounts on or before August 15, 1992 (by
said date, obligations would amount to
P4.870,499.13
 Despite repeated demands, Tondas failed
to comply with their obligations stated in
the trust receipts agreements (failing to
account the METROBANK goods and/or
proceeds of sale of the merchandise)
 Metrobank then filed a complaint/affidavit
for violation of PD No. 115 (Trust Receipts
Law) in relation to Art. 315 of RPC
METROBANK write that
they would accept their
proposal if there is
immediate payment of
the amount of 2.8M
 money had not been
actually applied as
payment for petitioner’s
outstanding obligation
under the trust receipts
account is absolutely
devoid of merit,
considering that
petitioners were still in
the process of
negotiating for a
reasonable loan
restructuring
arrangement (Tan Tiong
Tick vs. American
Apothecaries)
 "When a depositor is
indebted to a bank, and the
debts are mutual bank may
apply the deposit, or such
portion thereof as may be
necessary, to the payment of the
debt due it by the depositor”
Applying the above-mentioned
ruling in this case, if the parties
therefore fail to reach an
agreement regarding
restructuring of HTAC's loan,
Metrobank can validly apply the
amount deposited by the
petitioners as payment of the
principal obligation under the
trust receipts account.
CA: granted Tondas’s special civil WON THERE IS
NO. Art. 1288 provides that compensation shall not be
action with application for TRO COMPENSATION
proper when one of the debts consists in civil liability
arising from a penal offense.
 held that in 1991, due to some
financial reversals, HTAC were The rasion d’etre for this is that, “if one of the debts consists
constrained to propose a loan in civil liability arising from a penal offense, compensation
restructuring agreement with shall be improper and inadvisable because the satisfaction
Tonda to enable them to finally of such obligation is imperative.
settle all outstanding obligations
It has been held that:
 that the new management and
Mr. Tonda will pay immediately "[a]ny compromise relating to the civil liability arising from
the principal amounting to 2.8M an offense does not automatically terminate the criminal
w/ interest of 409k (in a joint proceeding against or extinguish the criminal liability of the
sharing account in the name of malefactor."17 All told, the P2.8 Million deposit could not be
Tonda and Wang Tien En; considered as having settled the trust receipts obligations
deposited 4 different checks) of the TONDAS to the end of extinguishing any incipient
criminal culpability arising therefrom.
(4) the money remains deposited
under the savings account of
petitioners awaiting a final
agreement with METROBANK
regarding the loan restructuring
arrangement; and that
(5) there is no evidence suggesting
that METROBANK has been
damaged by the proposal and the
deposit or that the TONDAS
employed fraud and deceit in their
dealings with the bank.
the
TL;DR  By citing the case of Tan
Tiong Tick, CA implied that in
making the deposit, the TONDAS
are entitled to set off by way of
compensation, their obligations
to METROBANK
PHILTRUST vs. ROXAS  Spouses Roxas procured loans from PTC in
the amount of P2.5M to finance their real
estate business, secured by REM on their
real properties
 April 10, 1979 – Spouses Roxas, PTC and
Roben Construction, Inc. entered into a
“contract of building construction” under
which PTC granted an additional loan of
P900k to the Spouses Roxas to enable them
to finish their ongoing housing projects
 This was superseded by a new “ contract of
building construction” executed by and
among PTC, Spouses Roxas, and Rosendo P.
Dominguez, Jr. ("Dominguez"). Dominguez
substituted Rohen Construction as the
contractor under the same terms and
conditions of the contract dated April 10,
1979.
NEW CONTRACT STIPULATIONS:
1. That the money loaned from PTC shall be
devoted to the funding of the housing
projects, as the rentals of which would be
used to liquidate the loan
2. PTC may only release the proceeds of the
loan for the purchase of materials and
supplies the proceeds of the loan for the
purchase of materials and supplies when
requested by Dominguez with the consent
of Spouses Roxas
 PTC only released to Dominguez the sum of
P870k although Spouses Roxas had agreed
only to the release of P450k (evi by PN)
 Due to financial diff, Spouses Roxas did not
finish the housing project  did not
receive monthly rentals from prospective
lessees  missed amortization payments
in their loans from PTC
PTC filed a counterclaim
against Spouses Roxas on
their unpaid loan
obligation = P3M plus
interest of P245k
 While Civil Case was
still pending, PTC filed for
the extrajudicial
foreclosure of the REMs.
Spouses Roxas opposed,
and RTC rendered a
decision in their favor.
CA: affirmed the decision
of the RTC, and in PTC’s
opposition to the motion
for execution, it raised for
the first time legal
compensation to offset
the judgment debt due to
the Spouses Roxas
 “that it could not have
raised legal
compensation as a
defense because it was
not yet a debtor of the
Spouses Roxas when it
filed its answer”
Dominguez then filed a complaint
for breach of contract of building
construction; Spouses Roxas filed
a civil case
RTC: in favor of Dominguez,
denying PTC’s counterclaim for
lack of sufficient proof
 denied PTC’s opposition
holding that PTC deemed to have
waived legal compensation
because it failed to invoke the
same as an affirmative defense in
its answer (should have raised at
the trial stage)
CA  denied PTC’s petition too, as
it found that not all requisites of
legal compensation were present
WON LEGAL
NO.
COMPENSATION CAN
TAKE PLACE BETWEEN #1 PTC is estopped from raising the issue of legal
PTC’S LOAN CREDIT compensation
AND SPOUSES ROXAS’ We agree with the Court of Appeals that it was too late for PTC to set
JUDGMENT CREDIT up legal compensation as a defense because the Main Case had
already reached the execution stage. The rule is that once a
decision becomes final and executory, execution shall issue as a
matter of right,24 and the issuance of a writ of execution is the court's
ministerial duty, compellable by mandamus. Although there are
recognized exceptions to this doctrine, (a supervening event that
renders execution inequitable or unjust,27 none obtains in this case.)
#2 Legal Compensation is never presumed
Although legal compensation takes place by operation of law, it
must be alleged and proved as a defense by the debtor who
claims its benefits. Only after it is proved will its effects retroact to
the moment when all the requisites under Article 1279 of the Civil
Code have concurred.32
REBUTTAL OF PTC’S CANNOT BE RAISED AS AN
AFFIRMATIVE DEFENSE:
Under Rule 8, Section 2 of the 1964 Rules of Court, "[a] party may
set forth two or more statements of a claim or defense alternatively or
hypothetically, either in one cause of action or defense or in separate
causes of action or defenses."33 Thus, the defense of compensation
would have been proper and allowed under the rules .
 PTC still failed to raise this defense in its motion for
reconsideration of the Bataan RTC decision and in its subsequent
appeal.
#3 Not all the requisites of legal compensation were
present
Even if we assume that legal compensation was not waived and was
otherwise timely raised, The fourth requisite is absent. A debt is
liquidated when its existence and amount are
determined.37Compensation can only take place between certain
and liquidated debts; it cannot extend to unliquidated, disputed
claims.38 Since the loan obligation, including its amount and
demandability, is still being disputed in CA-G.R. CV No. 30340,
PTC's credit cannot be considered liquidated as of yet. Consequently,
no legal compensation could have taken place between PTC's loan
credit and the Spouses Roxas' judgment credit.
MARPHIL EXPORT vs.  To finance its purchase and export of
ALLIED BANKING cuttlefish, cashew nuts, and similar agri
products, Allied Bank granted Marphil a
credit line from which Marphil availed of
several loans, evidenced by PNs
 These loans were in the nature of
advances, secured by 3 Continuing
Guaranty/Surety Agreements
 Irrevocable letters of credits also served as
collaterals for the loans obtained to pay
for export bills
 In turn, Allied Bank required Marphil to
execute a LOA where they undertook to
reimburse Allied Bank in the event that
the export bills/drafts are refused by the
drawee
 Petitioner exported cashew nuts to Intan
Trading Ltd. Upon application of Intan,
Nanyang Bank issued irrevocable letters of
credit covering 2 separate purchase
contracts/orders for cashew nuts made by
them
 The first order of cashew nuts was duly
made. On the 2nd order, Marphil availed
additional loans in their credit line for
P500k and P500k(evidenced by PN)
 When Intan placed a second order for cashew
nuts, Marphil availed additional loans in their
credit line evidenced by PN No. 0100-88-
02463[16] (PN No. 2463) for P500,000.00 and PN
No. 0100-88-02730[17] (PNNo. 2730) for
P500,000.00. Similar to the previous transaction,
Intan applied for and opened L/C No. 21970 with
Nanyang Bank in the amount of US$185,000.00,
with Marphil as the beneficiary and Allied Bank as
correspondent bank.[18] After receiving the export;
documents including the draft issued by Marphil,
Allied Bank credited Marphil in the amount of
P1,913,763.45, the peso value of the amount in
the letter of credit.[19]
However, on July 2, 1988, Allied Bank informed
Marphil that it received a cable from Nanyang
Bank noting some discrepancies in the shipping
documents.[20] On July 16, 1988, Allied Bank again
WON ALLIED BANK’S YES.
DEBIT MEMO ON
In this case, when Allied Bank credited the amount of P1,913,763.45
MARPHIL’S CREDIT to Marphil's account, it became the debtor of Marphil. However, once
LINE IS THE AMOUNT Nanyang Bank dishonored the export documents and draft for L/C
OF 1.9M IS VALID No. 21970, Marphil became the debtor of Allied Bank for the amount
by virtue of its obligation to reimburse the bank under the Letter
Agreement. This obligation consisting of sum of money became
demandable upon notice of the dishonor by Nanyang Bank. Thus,
legal compensation may take place between the two debts.
In Associated Bank, we nevertheless emphasized that while the bank
has the right to set off, the exercise of such right must be consistent
with the required degree of diligence from banks, i.e., highest degree
of care. Thus, the question that needs to be resolved now is whether
Allied Bank properly exercised its right to set off.[67]
We rule that Allied Bank properly exercised its right to set off. Firstly,
having signed the Letter Agreement, Marphil expressly undertook that
in case of dishonor of the draft for the letter of the credit, it will refund
to Allied Bank whatever the latter has credited in its favor. This places
Marphil on its guard that the dishonor will create an obligation to
refund the amount credited. Secondly, prior to debiting the amount,
Allied Bank informed Marphil twice of Nanyang Bank's refusal to
honor the tender of documents on L/C No. 21970. Thirdly, it
immediately informed Marphil that it was debiting the amount of the
dishonored draft from the credit line.
Most importantly, the debiting of the account was not the proximate
cause of the loss to Marphil brought about by the reshipment of goods
back to Manila. The proximate cause of the loss is the subsequent
dishonor of the documents by Nanyang Bank, which came before the
debiting of the account. The P1,913,763.45 subject of the debit memo
was already the costs incurred in relation to the financing and
shipping of the goods to Hong Kong, and do not refer to the loss
incurred when the goods were shipped back to Manila. Thus, the
debiting of Marphil's account did not result in additional losses for
Marphil.
In sum, we affirm that Allied Bank is not a confirming bank under L/C
No. 21970. In any case, whether Allied Bank is directly liable as
confirming bank will not affect Marphil's obligation to reimburse Allied
Bank the amount;of P1,913,763.45 because its liability to refund the
amount arose under an independent contract, i.e. the Letter
Agreement. And while Allied Bank is the debtor of Marphil for the
amount it credited under the draft, the obligation under the Letter
Agreement made Allied Bank the creditor of Marphil for the same
amount. Being debtor and creditor of each other, Allied Bank was
entitled to legal compensation by debiting the amount, which did not
result in any loss to Marphil
 informed Marphil that it received another cable
from Nanyang Bank still noting the discrepancies
and that Intan refused to accept the
discrepancies.[21] Consequently, Nanyang Bank
refused to reimburse Allied Bank the amount the
latter had credited in Marphil's credit line. In its
debit memo, Allied Bank informed Marphil of the
dishonor of L/C No. 21970 and that it was
reversing the earlier credit entry of
P1,913,763.45.[22] Lim was made to sign a blank
promissory note, PN No. 0100-88-04202,[23] (PN
No. 4202) on September 9, 1988 to cover for the
amount.

On March 6, 1990, Marphil filed a Complaint[25] for

declaratory relief and damages against Allied Bank
(Declaratory' Relief Case) raffled to Branch 61 of RTC
Makati.[26] In its Complaint, Marphil asked the court to
declare PN No. 4202 void, to declare as fully paid its other
obligations to Allied Bank, and to award it actual, moral and
exemplary damages, and attorney's fees.[27] Marphil
maintained that it had fully paid its account with Allied Bank,
and that PN No. 4202, which Lim executed on September 9,
1988, was void for lack of consideration. Marphil alleged
that it was constrained to send back the shipment to the
Philippines thereby incurring expenses and tremendous
business losses. It attributed bad faith to Allied Bank
because the latter did nothing to protect its interest; Allied
Bank merely accepted Nanyang Bank's position despite L/C
No. 21970 being irrevocable, and Allied Bank allegedly
confirmed Nanyang Bank's revocation.

On May 7, 1990, Allied Bank filed its Answer with

Compulsory Counterclaim and Petition for Writ of
Preliminary Attachment.[28] Allied Bank maintained that PN
No. 4202 was supported by consideration, and denied that
Marphil has fully paid its obligation to it. As counterclaim,
Allied bank sought to collect on three (3) promissory notes,
PN Nos. 2463, 2730 and 4202.[29]

 ART 1291-1304 NOVATION

LICAROS vs.  Abelardo Licaros, decided to make a fund Licaros thus sent CA: reversed the RTC’s decision WON THE MOA
IT WAS IN THE NATURE OF CONVENTIONAL
GATMAITAN placement with Anglo-Asean Bank and demands for payment and held that respondent did not BETWEEN THE
 Trust Limited in the 1980s.
 After having invested in Anglo-Asean,
Licaros encountered difficulties in
retrieving the very investments he had put
in Anglo-Asean
 Licaros then sought the counsel of
Gatmaitan, a reputable banker and
investment manager. Gatmaitan
voluntarily offered to assume to payment
of Anglo-Asean’s indebtedness subject to
certain terms and conditions (MOA)
STIPULATIONS OF THE MOA:
1. $150K debt indebtedness of Anglo-Asean
Bank to Licaros
2. Grant Gatmaitan the full power and
authority, for his own use and benefit to
prosecute and withdraw any suit or
proceedings therefor
3. Agree and stipulate that the debt assigned
is justly owing and due to Licaros and that
he has not done and will not cause
anything to be done to diminish or
discharge of the said debt
 Gatmaitan thus executed a PN with
assignment of cash dividends, promising
to pay P3,150,000 without interest as full
settlement of his money claims
 As security, he assigned 70% of all cash
dividends from Prudential Life Plans and
Prudential Life realty, shares of payable on
or before July 1993 (as a shareholder w/
Licaros as first option buyer)
 Gatmaitan thus presented the MOA to the
bank but no formal response was made by
the bank to either of them. Hence, Mr.
Gatmaitan did not comply his
responsibility indicated in the MOA
(3.5M + 6% interest) and at any point become obligated to PARTIES IS ONE OF
SUBROAGATION WHICH REQUIRES THE CONSENT OF THE
filed an action pay to petitioner the amount ASSIGNMENT OF
DEBTOR FOR ITS VALIDITY.
stated in the PN. CREDIT OR
RTC: RULED THAT THE  CONVENTIONAL CONVENTIONAL "Immediately discernible from above is the common feature
MOA WAS IN THE SUBROAGTION AS THE MOA SUBROGATION of contracts involving conventional subrogation, namely, the
NATURE OF AN NEVER CAME INTO EFFECT DUE TO approval of the debtor to the subrogation of a third person in
ASSIGNMENT OF CREDIT FAILURE OF THE PARTIES TO GET place of the creditor. That Gatmaitan and Licaros had
 liable for the amount THE CONSENT OF THE BANK TO intended to treat their agreement as one of conventional
even if the parties failed THE AGREEMENT subrogation is plainly borne by a stipulation in their
to obtain the consent of Memorandum of Agreement
Anglo Asean Bank
 Whereas clause
 Could not be a  Signature space captioned “WITH OUR CONFORME”
conventional subrogation for a representative of Anglo-Asean Bank
considering that there
"WHEREAS, the parties herein have come to an agreement
was no new obligation
on the nature, form and extent of their mutual prestations
created
which hey now record herein with the express conformity of
the third parties concerned" (emphasis supplied), which
third party is admittedly Anglo-Asean Bank.
The absence of such conformity on the part of Anglo-Asean,
which is thereby made a party to the same Memorandum of
Agreement, prevented the agreement from becoming
effective.
REBUTTAL OF LICAROS’S CONTENTION:
The extinguishment of the old obligation is the effect of the
establishment of a contract for conventional subrogation. It
is not a requisite without which a contract for conventional
subrogation may not be created. As such, it is not
determinative of whether or not a contract of conventional
subrogation was constituted.
Moreover, if conventional subrogation had taken place with
the consent of Anglo-Asian Bank to effect a change in the
person of its creditor, there is necessarily created a new
obligation whereby Anglo-Asean Bank must now give
payment to its new creditor, herein respondent.
AQUINTEY vs. The Case for Agrifina
TIBONG
 Petitioner, classmates in college, agreed to lend
money to Felicidad. The latter said that she would
be earning interet rates higher than those
given by banks for her money. As she was
engaged in the sale of dry goods, she would use
the money to buy bonnels and thread
 Thus, Agrifina lent her a total sum of 773k, each
loan transaction was covered by either a
PN/AR
 Agrifina stated that she had lost the receipts
signed by Felicidad for (100k, 34k, 2k)
 Felicidad was able to pay only her loans (122k)
 Felicidad gave to Agrifina City Trust Bank
Check (50k) as partial payment, but the check
was dishonored for having been drawn
against insufficient funds
 Agrifina then filed a case for BP 22
 Agrifina then learned that Felicidad had re-loaned
the amounts to other borrowers
 As suggested by her lawyer, respondent spouses
to execute PNs to petitioner so that their loans
would be “turned over” from Felicidad
 Aug 7, 1990 – Oct. 1990 – Felicidad executed
Deeds of Assignment of credits (obligations)
in which Felicidad transferred and assigned
P546k. In the said deeds, Felicidad confirmed
that her debtors were no longer indebted to her
for respective loans
 Following the execution of the deeds of
assignment and promissory notes, Agrifina was
able to collect the total amount of P301,000.00
from Felicidad's debtors.30
 In April 1990, she tried to collect the balance of
Felicidad's account, but the latter told her to wait
until her debtors had money.31 When Felicidad
reneged on her promise, Agrifina filed a complaint
in the Office of the Barangay Captain for the
collection of P773,000.00. However, no
settlement was arrived at.32
The Case for Spouses Tibong
 She alleged that both of them entered into a re-
lending business. Aquintey asked her to pay her
account since she needed the money to buy a
house and lot in Manila, but Felicia told her she
could not pay yet since the loan of the debtors
are not yet due.
Agrifina Aquintey filed a
complaint for sum of money
and damages against
respondent Spouses Tibong.
Aquintey alleged that Felicidad
Tibong secured loans from her,
and despite demands, the
Spouses Tibong failed to pay
their outstanding loan (P773k)
exclusive of interests (6-7%
monthly); 34k and 100k
RTC: held that Felicidad’s
obligation had not yet been
novated by the Deeds of
Assignment and PNs executed
by her borrowers. The
documents did not contain any
express agreement to novate
and extinguish Felicidad’s
obligation.
 Deeds and notes as separate
contracts; that since Agrifina’s
admission that she was able to
collect 301k, this should be
deducted from the latter’s
accountability = P472k
CA: affirmed RTC’s decision with
modification, ordering
defendant to pay the balance of
the total indebtedness in the
amount of P51,341k w/ 6%
interest per month
In their Answer with Counterclaim
spouses Tibong admitted that they had
secured loans and that its proceeds were
re-lent to other borrowers at higher
interest rates
 They also alleged that they had
executed PNs in Agrifina’s favor,
which resulted in a novation of
the original obligation to
Agrifina
 That by virtue of these
documents, Agrifina became the
new collector of the debtors,
and that the obligation to pay
the balance of their loans had
been extinguished
WON THE OBLIGATION OF
THE RESPONDENTS TO PAY YES. We agree with the finding of the CA that petitioner had no right
PETITIONER HAS BEEN to collect from respondents the total amount of P301,000.00, which
includes more than P178,980.00 which respondent Felicidad
EXTINGUISHED BY THE
DEEDS OF ASSIGNMENT OF collected from Tibong, Dalisay, Morada, Chomacog, Cabang, Casuga,
Gelacio, and Manuel. Petitioner cannot again collect the same
CREDIT
amount from respondents; otherwise, she would be enriching herself
at their expense. Neither can petitioner collect from respondents more
than P103,500.00 which she had already collected from Nimo,
Cantas, Rivera, Donguis, Fernandez and Ramirez.
There is no longer a need for the Court to still resolve the issue of
whether respondents' obligation to pay the balance of their loan
account to petitioner was partially extinguished by the promissory
notes executed by Juliet Tibong, Corazon Dalisay, Rita Chomacog,
Carmelita Casuga, Merlinda Gelacio and Antoinette Manuel because,
as admitted by petitioner, she was able to collect the amounts under
the notes from said debtors and applied them to respondents'
accounts.
ASSIGNMENT OF CREDIT:
 We find in this case that the CA correctly found that respondent’s
obligation to pay the balance of their account with petitioner was
extinguished pro tanto, by the deeds of assignment of credit
executed by respondent Felicidad in favor of petitioner.
An assignment of credit is an agreement by virtue of which the
owner of a credit (assignor) by a legal cause (sale, dation,
exchange, or donation) and without the consent of the debtor,
transfers his credit and accessory rights to another (assignee).
All the requisites (PERFORMANCE, DIFFERENCE BETWEEN
PRESTATION DUE AND SUBSITUTION, AGREEMENT) for a valid
dation in payment are present in this case. As gleaned from the
deeds, respondent Felicidad assigned to petitioner her credits "to
make good" the balance of her obligation. Felicidad testified that she
executed the deeds to enable her to make partial payments of her
account, since she could not comply with petitioner's frenetic
demands to pay the account in cash. Petitioner and respondent
Felicidad agreed to relieve the latter of her obligation to pay the
balance of her account, and for petitioner to collect the same from
respondent's debtors.
 an objective novation of the obligation where the thing offered as
an accepted equivalent of the performance of an obligation is
considered as the object of the contract of sale, while the debt is
considered as the purchase price. (COMMON CONSENT
NEEDED)
 In an AOC, the consent of the debtor is not essential for
its perfection; the knowledge thereof or lack of it affecting
only the efficaciousness of any payment that might have
been made. Purpose of notice is only to inform the debtor
from the date of the assignment.
 Hence, she executed Deeds of Assignment in
favor of Aquintey covering the sums of money due
from her debtors
RICARZE vs. CA  Eduardo Ricarze – employed as a collector Petitioner averred that RTC allowed substitution of PCIB WON THERE IS A
YES.
messenger by City Service Corporation. He unless the Informations as private complainant for Caltex VALID SUBROGATION
was assigned to collect checks and invoices were amended to change BETWEEN CALTEX The Court agrees with respondent PCIB’s comment that
payable to Caltex (main office) and deliver the private complainant PCIB contended that it re-credited AND PCIBANK petitioner failed to make a distinction between legal
them to the cashier. to PCIB, his right as the amount to Caltex to the and conventional subrogation.
 November 6, 1997 – Caltex filed a criminal accused would be extend of the indemnity, hence,
complaint for Estafa through Falsification prejudiced the PCIB had been subrogated to
of Commercial Documents. the rights and interests of Caltex Subrogation – the transfer of all the rights of the
 Romano (Caltex Manager) alleged that it  He insisted that the as private complainant. creditor to a 3rd person, who substitutes him in all his
was discovered that a company check amendments of the  Entitled to receive any rights
(5.7M) payable to Gutierrez has been Informations to substitute civil indemnity
cleared through PCIB. It was also revealed PCIB as the offended  LEGAL vs. CONVENTIONAL
that 2 other checks were missing and that party for Caltex would
signatures were forgeries. place him in double - that which takes place - that which takes place
 Another check (1.7M) likewise payable to jeopardy without agreement, but by agreement of the
Dante was also cleared  that he had no by operation of law parties
 It was discovered that the checks were knowledge of the because of certain acts
deposited at BDO in the name of subrogation, much less
Gutierrez, a regular customer of Caltex. gave his consent
 Gutierrez, disowned the savings account +  that if the subrogation In this case, petitioner’s acquiescence is not
his signatures + having withdrawn any was proper, then the necessary for subrogation to take place because
amount from said savings account. charges against him this is of legal subrogation, without need of the
 Further investigation revealed that the should be dismissed for debtor’s knowledge.
savings account was actually opened by they are tantamount to Thus, being subrogated to the right of Caltex, PCIB has
Ricarze, and that the forged checks were being void due to false the right to intervene in the proceedings, and under
deposited and endorsed by him under allegations substantive laws is entitled to restitution of its
Gutierrez’s name. (Bank teller positively properties/funds/reparation/indemnification.
identified him)
 2 informations of the charge of Estafa
through Falsification of Commercial Re: Dismissal due to the designation of the name of the
Document (the 2 checks) offended party
 Petitioner plead not guilty to both charges;
In offenses against property, this is not absolutely
In the meantime, PCIB credited the indispensable for as long as a criminal act charged in
amount of P581, 299 to Caltex. the complaint/information can be properly identified.
 Under the Informations, the private
complainant is Caltex, and not PCIB, hence,
the Formal Offer of Evidence by SRMO *** He cannot claim any surprise by virtue of substation,
should be stricken from the records as this is not a substantial amendment
LEDONIO vs. CAPITOL  Respondent Capitol Development instituted
DEVELOPMENT a collection of sum of money against
Edgardo Ledonio. Capitol Development
alleged that Ledonio obtained from Ms.
Picache 2 loans, w/ the principal amount
of P60k covered by PNs duly signed by
petitioner.
First PN: Nov 9, 1988
 petitioner promised to pay the to the order of
Ms. Picache the principal amount of P30k in
monthly installments of 3k
Second PN: Nov 10, 1988
 Ledonio promised to pay to the order of Ms.
Picache the principal of P30k w/ 36% interest per
annum.
 In case of default in payment, both PNs
provided penalties (equivalent to 20% of
outstanding balance, unpaid interest shall
be compounded, AF and liquidated
damages equivalent to 20% of total
amount)
 April 1 – Ms. Picache executed an
Assignment of Credit in favor of
respondent for the debt from Ledonio;
notarized
 Since petitioner did not pay any of the
loans covered by the PNs when they
became due, respondent sent several
demand letters
 Despite receiving said letters, petitioner
still failed and refused to settle his
indebtedness, prompting respondent to file
the complaint with the RTC.
Ledonio sought the RTC: ruled in favor of respondent WON THERE IS
NO. The Assignment of Credit, executed by Ms. Picache was
dismissal of the because it gave more credence to SUBROGATION WHICH
a simple deed of assignment, not conventional subrogation.
complaint, denying that the facts it presented. (Ledonio as REQUIRES THE
he obtained any loan BS Chem ENG who knew better CONSENT OF THE
ASSIGNMENT OF CREDIT vs. SUBROGATION
from Ps. Picache. than to sign blank PNs; DEBTOR
 that the PNs were a contradiction of testimonies) - agreement by virtue of - the transfer of all rights
result of intimidation and which the order of the of the creditor to a 3rd
fraud  upheld the validity and credit (assignor) without person, who subsitutes
enforceability of the Assignment need of the debtor’s him in all his rights
HIS VERSION: of Credited even in the absence of consent, transfers that
 That on Feb. 24, 1988, petitioner’s consent credit and its accessory
he entered into a rights to another  Extinguishes the
Contract of Lease of real **Petitioner asserts that the (assignee) who acquires obli and gives
property with MRMC, consent of the debtor to the the power to eforce it to rise to a new one
where Ms. Picache is a assignment of credit is a the same extent as the
 Debtor’s consent
member of the BOD. He basic/essential element in order assignor
is necessary
then relocated his plant for the assignee to have a cause
and machines for his of action against the debtor. Petitioner was unable to establish conventional subrogation
garment business to the (CONVENTIONAL SUBROGATION; by a preponderance of evidence. There is nothing in the said
leased property. 1301) Assignment of Credit that implies that a conventional
 That a foreign investor subrogation was intended by the parties. The terms were
sent a representative to straightforward as to the intention of Ms. Picache to: “sell,
conduct an ocular assign, transfer, and convey” to respondent the debyt due
inspection of the plant her from petitioner.
and leased property.
 Signed solely by her
Meralco officers then
came in and cut off  No reference made to securing the conforme of
power to the plant, petitioner; nor any space for his signature in the
discouraging the investor.
said document
 He incurred damages
amounting to $60k due to All that is required was the knowledge of the debtor to
unpaid electric bills of bind him to the new creditor; no formal notice
the leased property.
 Ledonio had knowledge of the assignment as he
He decided to vacate expressly acknowledged the receipt of the demand
but ONLY when he signs letter when the loans became overdue, and even
BLANK PNs. He claims replied
Ms. Picache took
advantage of petitioner’s **legally enforceable to 3rd person as document was duly
signatures. notarized
HEIRS OF SERVANDO  Servando Franco and Leticia Medel
FRANCO vs. obtained loans from Veronica Gonzales
GONZALES who was engaged in money lending
business (Gonzales Credit Enterprises)
First loan:
- 50k payable in 2 months; Veronica gave
only the amount of 47k and retained the
3k as advanced interest for 1 month (PN of
P50k)
Second loan:
- P90k payable in 2 months at 6% w/ PN. But
he only received P84k. On the maturity of
the 2 loans, they failed to pay the
indebtedness
Third loan:
- P300k maturing in one month, secured by
REM over a property of Leticia
Yapthinchay, and only a sum of P275K was
given. They also failed to pay the 3rd loan
on maturity.
Fourth loan:
- they consolidated all their previous unpaid
loans totaling to P440k and sought from
Veronica another loan in the amount of
P60k
 = P500k (w/ PN) at an interest rate of 5.5%
per month plus 2% service charge. Should
they fail to pay, additional amount of 1%
per month as penalty charge
 Upon maturity of the consolidated loan,
Veronica filed a complaint for collection of
full amount plus interest and other
charges
Servacio alleged that he
did not obtain any loan
from the plaintiffs, and
that it was Leticia Mendel
and her husband who
borrowed from the
Gonzales
 He merely signed as
witness
!!!  After the finality of
the decision awarding the
creditor of his claims w/
issuance of writ of
execution, the debtors
claimed that the parties
had entered into a
COMPROMISE
AGREEMENT (Feb 5, 1992
receipt issued by the
creditor).
 That a novation took
place resulting in the
inapplicability of the writ
of execution; Hence, RTC
could not validly enforce a
judgement based on a PN
that had already been
novated
 According to Servando,
their agreement was that
the entire obligation be
fixed at P775K from
P500k + extension of
maturity date from Aug.
23, 1986 – Feb 29, 1992
RTC: ordered petitioners to pay
the amounts.
The respondents aver that the
petitioners seek to alter, modify, or
revoke the final and executory
decision of the Court
 that novation did not take place
because there was no
incompatibility between the PN
and the memorandum receipt;
and that Servando’s previous
payment would be deducted from
the total liability of the debtors
based on the RTC decision.
WON THERE WAS A
NO.
NOVATION OF THE PN
WHEN VERONICA No irreconciliable incompatibility existed between the PN
GONZALES ISSUED and the receipt
THE MEMORANDUM
As novation is never presumed, parties must either expressly
RECEIPT
agree or that they be incompatible. The issuance of the
receipt created no new obligation, instead, Gonzales only
thereby recognized the original obligation by stating in the
receipt that the P400k was “partial payment of the loan”
and by referring to the PN subject of the case in imposing
the interest. The loan mentioned in the receipt was still the
same loan involving the P500k.
The receipt was merely a proof of payment of his obligation
as ruled by the RTC. It did not establish novation. An
obligation to pay a sum of money is not novated by an
instrument that expressly recognizes the old, or changes
only the terms of payment, or adds other obligations not
incompatible with the old ones, or the new contract merely
supplements the old one.
A new contract that is a mere reiteration, acknowledgement,
or ratification of the old contract with slight modifications
that can stand with the former, means that there is no
incompatibility.
BPI vs. DOMINGO  Respondent Amador Domingo and his wife
executed a PN in favor of Makati Auto
Center, Inc. in the sum of P629k payable in
48 successive monthly installments; P13k
each. (Deed of CM over a 1993 Mazda 323
as security.
 Makati Auto Center then assigned all its
rights and interests over the said PN and
CM to Far East Bank and Trust Company.
 The spouses defaulted in their obligation
when they failed to pay 28 monthly
installments. BPI, as surviving corporation
demanded that they pay the balance and
late payment charges or return the vehicle
for foreclosure.
 When spouses still failed to comply with
the demands, BPI filed a Complaint for
Replevin and Damages.
 BPI included a John Doe as defendant
because at the time of the filing of the
complaint, BPI was already aware that the
subject vehicle was in the possession of a
3rd person, but did not yet know the
identity of the said person.
 While still paying for the car, Carmelita
Gonzales got interested to buy the car and
was willing to assume to mortgage. Hence
after furnishing with the bank a Deed of
Sale, she subsequently issued a check
payable to the FEBTC and the remaining
postdated checks were returned to them
(P385k)

METC: found Amador’s According to Amador, he admitted
testimony to be that his wife bought a car and was
insufficient to prove that mortgaged to FEBTC. He recalled
he and his wife had been that Mercy issued 48 checks; 12
expressly released were cleared by the bank and his
(necessary) from their wife was able to obtain a
obligations, and that discount.
Carmelita assumed their
place as the new debtor  Amador claims that the motor
within the context of the vehicle had been sold to
subjective novation. Carmelita Gonzales
Without such release, RTC: held that there was novation,
there is no novation and as consent of the creditor need
the 3rd person who not be by express, as it can be
assumes becomes merely implied. It noted that it accepted
a co-debtor or surety. payments from Carmelita and
only demanded from the Spouses
Domingo 30 months after
Carmelita assumed payments.
BASIS:
 Delegacion between
Domingo and Carmelita
 BPI has a copy of the DOS
and Assumption of
Mortgage executed
between Mercy and
Carmelita in its file
 BPI returned the check
and accepted Carmelita’s
payments
 BPI did not demand any
payment from the
spouses not until 30 mos
after Carmelita assumed
payment of the balance
of the PN (P275k)
WON THERE HAD
NO. Creditor’s consent is needed in Novation, whether it be
BEEN A NOVATION OF
expromision or delegacion.
THE LOAN
WON CARMELITA WAS
BPI’s express consent was never given
SUBSTITUTED AS
DEBTOR 1. Documents are still under their name, and no new
document was executed between BPI and
Carmelita
BPI’s possession of a copy did not mean that it had
consented the same. The very deed itself states that they
agree to “seek the conformity of the FEBTC”.
 Documents still under the name of Spouses Domingo; No
new PN/CM had been executed between BPI and Carmelita;
The absence of objection on the part of BPI cannot be
presumed as consent.
2. There is no proof of consent to release the Spouses
Domingo as debtors from their obligation;
Carmelita is considered as an additional debtor
The consent of the BPI to the substitution of debtors cannot
be deduced from its acceptance of payments absent proof of
its clear and unmistakeable consent to release the Spouses
Domingo from their obligation. The acceptance by a creditor
of payments from a 3rd person who has assumed the
obligation will result merely to the addition of debtors, not
novation.
3. There is no sufficient or competent evidence to
establish the return of the checks to the spouses
Domingo and assurance by FEBTC that they are
released
Amador admitted that it was his wife Mercy and Carmelita
who directly transacted with the FEBTC regarding the sale
and assumption of mortgage. Amador had no personal
knowledge of what had happened; hence, testimony was
hearsay.
FORT BONIFACIO  June 5, 2000 – Fort Bonidacio Development
DEVELOPMENT vs. Co. entered into a Trade Contract with MS
FONG Maxco for the execution of the structural
and partial architecture works of Bonifacio
Ridge Condo’s project.
 FBDC had the right to withhold 5% of the
contract price as retention money.
Under the Trade Contract, FBDX had the option to
hire other contractors to rectify and errors
committed by MS Maxco by reason of its
negligence, act, omission, or default, as well as to
deduct/set-off anny amount from the contract
price in such cases.
 When MS Maxco incurred delays and failed
to comply with the terms of the contract,
FBDC took over and hired other
contractors to complete the unfinished
construction. (-P1.577M from MS Maxco’s
retention money)
 MS is also prohibited from assigning any of
its rights and obligation under the said
contract without the written consent of
FBDC.
 In 2005 – FBDC received a letter from the
counsel of Fong informing it that MS Maxco
already assigned its receivables from FBDC
to him (Fong) through a notarized Deed of
Assignment
 As payment of MS Maxco, it assigned the
1.57M to Fong taken from the retention
money.
FBDC acknowledged the 5% retention
money but asserted that the same
was not yet due and demandable;
already the subject of garnishment by
MS Maxco’s creditors.
 refused to deliver the amount
assigned by MS Maxco. In 2006, it
informed Fong that nothing was left of
its retention money after the
rectification of the defects and
garnishments.
Defenses raised:
1. Delays and defective works of
MS Maxco to complete the
work had to be deducted
from the retention money
2. It is not bound by the Deed of
Assignment between Fong
and MS Maxco, as it was not
a party thereto. As Fong was
merely a substitute or
assignee of MS Maxco, it was
bound to observe the Trade
Cont.
RTC: Found Fong liable to pay as it was
assignment of credit and did not
require the consent of FBD as debtor
for its validity and enforceability.
 Mere notice is enough
Fong thus filed the WON FBDC WAS
NO.
instant civil case for LIABLE TO PAY FONG
the payment of 1.577 THE AMOUNT The reason that a contracting party’s assignees, although seemingly
M. a third party to the transaction, remain bound by the original
party’s transaction under the relativity principle further lies in the
concept of subrogation, which inheres in assignment.
When a person assigns his credit to another person, the latter is
deemed subrogated to the rights as well as to the obligations of the
former.52 By virtue of the Deed of Assignment, the assignee is
deemed subrogated to the rights and obligations of the assignor
and is bound by exactly the same conditions as those which bound
the assignor. 53 Accordingly, an assignee cannot acquire greater
rights than those pertaining to the assignor.
Applying the foregoing, the Court finds that MS Maxco, as the
Trade Contractor, cannot assign or transfer any of its rights,
obligations, or liabilities under the Trade Contract without the
written consent of FBDC, the Client, in view of Clause 19.0 on
"Assignment and Sub-letting" of the Trade Contract itself.
Fong, as mere assignee of MS Maxco’s rights under the Trade
Contract it had previously entered with FBDC, i.e., the right to
recover any credit owing to any unutilized retention money, is
equally bound by the foregoing provision and hence, cannot
validly enforce the same without FBDC’s consent.
Without any proof showing that FBDC had consented to the
assignment, Fong cannot validly demand from FBDC the delivery of
the sum of 1,577,115.90 that was supposedly assigned to him by
MS Maxco as a portion of its retention money with FBDC. The
practical efficacy of the assignment, although valid between Fong
and MS Maxco, remains contingent on FBDC's consent. Without the
happening of said condition, only MS Maxco, and not Fong, can
collect on the credit. Note, however, that this finding does not
preclude any recourse that Fong may take against MS Maxco. After
all, an assignment of credit for a consideration and covering a
demandable sum of money is considered as a sale of personal
property.57
ASB REALTY vs. 
ORTIGAS
ODIAMAR vs. 
VALENCIA
FIGUERA vs. ANG 
EVER ELECTRICAL vs. 
PBCOM
PARADIGM  Sengkon, a sole proprietorship owned by PDCP alleged that FEB TC PDCP alleged that FEB TC assured it
DEVELOPMENT vs. Anita Go, obtained a loan from FEBTC assured it that the mortgaged that the mortgaged properties will only
BPI under a credit facility denominated as properties will only secure the secure the Credit Line sub-facility of the
Credit Line sub-facility of the Omnibus Line. With this understanding,
Omnibus Line (P100M; in Agreement for Omnibus Line. With this PDCP President Go allegedly agreed to
Renewal of Omnibus Line) understanding, PDCP sign on two separate dates a pro-forma
 FEBTC again granted Sengkon another President Go allegedly and blank REM, securing the amount of
agreed to sign on two ₱42.4 Million and P8 Million,
credit facility (P60M; secured partially by 2 separate dates a pro-forma respectively. PDCP, however, claimed
REMs; 8M and 42M) and blank REM, securing the that it had no intent to be bound under
 In a letter, FEBTC informed Sengkon amount of ₱42.4 Million and the second REM, which was not
P8 Million, respectively. intended to be a separate contract, but
regarding the renewal, increase, and PDCP, however, claimed that only a means to reduce registration
conversion of the P100M Omnibus Line  it had no intent to be bound expenses. 19
P150M and P20M Discounting Line, the under the second REM,
which was not intended to be
renewal of the 60M Credit Line and 8M a separate contract, but only
Bills Purchased Line a means to reduce
 In the same letter, FEBTC approved the registration expenses. 19
request of Sengkon to change the account
name
 Sengkon defaulted in the payment of its
loan obligations
 FEBTC demanded payment for the principal
balance of P244.2M; Negotiations were
then held and PDCP proposed to pay
approv 50M
 Negotiations were then put on hold
because BPI acquired FEBTC and assumed
the rights and obli of the later
 RTC then initiated foreclosure proceedings
(P76.5M as partial settlement of the
obligation of PDCP)
