CACAYORIN v.

AFP MUTUAL BENEFIT

Facts:Petitioner Oscar Cacayorin (Oscar) is a member of respondent Armed Forces and Police Mutual
Benefit Association, Inc. (AFPMBAI), a mutual benefit association duly organized and existing under
Philippine laws and engaged in the business of developing low-cost housing projects for personnel of
the Armed Forces of the Philippines, Philippine National Police, Bureau of Fire Protection, Bureau of Jail
Management and Penology, and Philippine Coast Guard. He filed an application with AFPMBAI to
purchase a piece of property which the latter owned, specifically Lot 5, Block 8, Phase I, Kalikasan
Mutual Homes, San Pedro, Puerto Princesa City (the property), through a loan facility.
On July 4, 1994, Oscar and his wife and co-petitioner herein, Thelma, on one hand, and the Rural Bank
of San Teodoro (the Rural Bank) on the other, executed a Loan and Mortgage Agreement 5 with the
former as borrowers and the Rural Bank as lender, under the auspices of Pag-IBIG or Home
Development Mutual Funds Home Financing Program.
The Rural Bank issued an August 22, 1994 letter of guaranty 6 informing AFPMBAI that the proceeds of
petitioners approved loan in the amount of P77,418.00 shall be released to AFPMBAI after title to the
property is transferred in petitioners name and after the registration and annotation of the parties
mortgage agreement.
On the basis of the Rural Banks letter of guaranty, AFPMBAI executed in petitioners favor a Deed of
Absolute Sale,7 and a new title Transfer Certificate of Title No. 37017 8 (TCT No. 37017) was issued in
their name, with the corresponding annotation of their mortgage agreement with the Rural Bank,
under Entry No. 3364.9
Unfortunately, the Pag-IBIG loan facility did not push through and the Rural Bank closed and was
placed under receivership by the Philippine Deposit Insurance Corporation (PDIC). Meanwhile, AFPMBAI
somehow was able to take possession of petitioners loan documents and TCT No. 37017, while
petitioners were unable to pay the loan/consideration for the property.
AFPMBAI made oral and written demands for petitioners to pay the loan/ consideration for the
property.10
In July 2003, petitioners filed a Complaint 11 for consignation of loan payment, recovery of title and
cancellation of mortgage annotation against AFPMBAI, PDIC and the Register of Deeds of Puerto
Princesa City. The case was docketed as Civil Case No. 3812 and raffled to Branch 47 of the Regional
Trial Court (RTC) of Puerto Princesa City (Puerto Princesa RTC). Petitioners alleged in their Complaint
that as a result of the Rural Banks closure and PDICs claim that their loan papers could not be
located, they were left in a quandary as to where they should tender full payment of the loan and how
to secure cancellation of the mortgage annotation on TCT No. 37017. Petitioners prayed, thus:
a. That after the filing of this complaint an order be made allowing the consignation x xx of
Php77,418.00.
b. For the court to compute and declare the amount of interest to be paid by the plaintiffs and
thereafter to allow the consignation of the interest payments in order to give way for the full
discharge of the loan.
c. To order the AFPMBAI to turn over to the custody of the court the loan records and title
(T.C.T. No. 37017) of the plaintiffs if the same are in their possession.
d. To declare the full payment of the principal loan and interest and ordering the full discharge
from mortgage of the property covered by T.C.T. No. 37017.

e. To order the Register of Deeds of Puerto Princesa City to cancel the annotation of real estate
mortgage under Entry No. 3364 at the back of T.C.T. No. 37017.
f. Thereafter, to turn over to the plaintiffs their title free from the aforesaid mortgage loan.
Petitioners assert that the elements which make up a valid case for consignation are present in their
Complaint. They add that since a deed of absolute sale has been issued in their favor, and possession
of the property has been surrendered to them, not to mention that title has been placed in their name,
the HLURB lost jurisdiction over their case. And for this same reason, petitioners argue that their case
may not be said to be one for specific performance of contractual and legal obligations under PD 957
as nothing more was left to be done in order to perfect or consolidate their title.
Petitioners thus pray that the herein assailed Decision and Resolution of the CA be set aside, and that
the trial court be ordered to continue with the proceedings in Civil Case No. 3812.
Respondent, on the other hand, insists in its Comment 20 that jurisdiction over petitioners case lies with
the HLURB, as it springs from their contractual relation as seller and buyer, respectively, of a
subdivision lot. The prayer in petitioners Complaint involves the surrender or delivery of the title after
full payment of the purchase price, which respondent claims are reciprocal obligations in a sale
transaction covered by PD 957. Respondent adds that in effect, petitioners are exacting specific
performance from it, which places their case within the jurisdiction of the HLURB.
Issue:W/N the complaint makes out a case for consignation.
Held: The Court grants the Petition.
The Complaint makes out a case for consignation.
The settled principle is that "the allegations of the Complaint determine the nature of the action and
consequently the jurisdiction of the courts. This rule applies whether or not the plaintiff is entitled to
recover upon all or some of the claims asserted therein as this is a matter that can be resolved only
after and as a result of the trial."21
Does the Complaint in Civil Case No. 3812 make out a case for consignation? It alleges that:
6.0 Not long after however, RBST22 closed shop and defendant Philippine Deposit Insurance
Corporation (PDIC) was appointed as its receiver. The plaintiffs, through a representative, made
a verbal inquiry to the PDIC regarding the payment of their loan but were told that it has no
information or record of the said loan. This made [sic] the plaintiffs in quandary as to where or
whom they will pay their loan, which they intend to pay in full, so as to cancel the annotation
of mortgage in their title.
7.0 It was discovered that the loan papers of the plaintiffs, including the duplicate original of
their title, were in the possession of defendant AFPMBAI. It was unclear though why the said
documents including the title were in the possession of AFPMBAI. These papers should have
been in RBSTs possession and given to PDIC after its closure in the latters capacity as
receiver.
8.0 Plaintiffs are now intending to pay in full their real estate loan but could not decide where
to pay the same because of RBST [sic] closure and PDICs failure to locate the loan records and
title. This courts intervention is now needed in order to determine to [sic] where or whom the
loan should be paid.

9.0 Plaintiffs hereby respectfully prays [sic] for this court to allow the deposit of the amount
of Php77,418.00 as full payment of their principal loan, excluding interest, pursuant to the
Loan and Mortgage Agreement on 4 July 1994.23
From the above allegations, it appears that the petitioners debt is outstanding; that the Rural
Banks receiver, PDIC, informed petitioners that it has no record of their loan even as it
took over the affairs of the Rural Bank, which on record is the petitioners creditor as per
the July 4, 1994 Loan and Mortgage Agreement; that one way or another, AFPMBAI came
into possession of the loan documents as well as TCT No. 37017; that petitioners are ready
to pay the loan in full; however, under the circumstances, they do not know which of the
two the Rural Bank or AFPMBAI should receive full payment of the purchase price, or to
whom tender of payment must validly be made.
Under Article 1256 of the Civil Code, 24 the debtor shall be released from responsibility by the
consignation of the thing or sum due, without need of prior tender of payment, when the creditor is
absent or unknown, or when he is incapacitated to receive the payment at the time it is due, or when
two or more persons claim the same right to collect, or when the title to the obligation has been lost.
Applying Article 1256 to the petitioners case as shaped by the allegations in their Complaint, the
Court finds that a case for consignation has been made out, as it now appears that there are two
entities which petitioners must deal with in order to fully secure their title to the property: 1) the Rural
Bank (through PDIC), which is the apparent creditor under the July 4, 1994 Loan and Mortgage
Agreement; and 2) AFPMBAI, which is currently in possession of the loan documents and the certificate
of title, and the one making demands upon petitioners to pay. Clearly, the allegations in the
Complaint present a situation where the creditor is unknown, or that two or more entities
appear to possess the same right to collect from petitioners. Whatever transpired between
the Rural Bank or PDIC and AFPMBAI in respect of petitioners loan account, if any, such
that AFPMBAI came into possession of the loan documents and TCT No. 37017, it appears
that petitioners were not informed thereof, nor made privy thereto.
Indeed, the instant case presents a unique situation where the buyer, through no fault of his own, was
able to obtain title to real property in his name even before he could pay the purchase price in full.
There appears to be no vitiated consent, nor is there any other impediment to the consummation of
their agreement, just as it appears that it would be to the best interests of all parties to the sale that it
be once and for all completed and terminated. For this reason, Civil Case No. 3812 should at this
juncture be allowed to proceed.
Moreover, petitioners position is buttressed by AFPMBAIs own admission in its Comment 25 that it
made oral and written demands upon the former, which naturally aggravated their confusion as to who
was their rightful creditor to whom payment should be made the Rural Bank or AFPMBAI. Its
subsequent filing of the Motion to Dismiss runs counter to its demands to pay. If it wanted to be paid
with alacrity, then it should not have moved to dismiss Civil Case No. 3812, which was brought
precisely by the petitioners in order to be able to finally settle their obligation in full.
Finally, the lack of prior tender of payment by the petitioners is not fatal to their
consignation case. They filed the case for the exact reason that they were at a loss as to
which between the two the Rural Bank or AFPMBAI was entitled to such a tender of
payment. Besides, as earlier stated, Article 1256 authorizes consignation alone, without
need of prior tender of payment, where the ground for consignation is that the creditor is
unknown, or does not appear at the place of payment; or is incapacitated to receive the
payment at the time it is due; or when, without just cause, he refuses to give a receipt; or
when two or more persons claim the same right to collect; or when the title of the
obligation has been lost.
Consignation is necessarily judicial; hence, jurisdiction lies with the RTC, not with the
HLURB.

On the question of jurisdiction, petitioners case should be tried in the Puerto Princesa RTC, and not
the HLURB. Consignation is necessarily judicial, 26 as the Civil Code itself provides that
consignation shall be made by depositing the thing or things due at the disposal of judicial
authority, thus:
Art. 1258. Consignation shall be made by depositing the things due at the disposal of
judicial authority, before whom the tender of payment shall be proved, in a proper case,
and the announcement of the consignation in other cases.
The consignation having been made, the interested parties shall also be notified thereof.
The above provision clearly precludes consignation in venues other than the
courts.1wphi1 Elsewhere, what may be made is a valid tender of payment, but not
consignation. The two, however, are to be distinguished.
Tender of payment must be distinguished from consignation. Tender is the antecedent of
consignation, that is, an act preparatory to the consignation, which is the principal, and
from which are derived the immediate consequences which the debtor desires or seeks to
obtain. Tender of payment may be extrajudicial, while consignation is necessarily judicial,
and the priority of the first is the attempt to make a private settlement before proceeding
to the solemnities of consignation. (8 Manresa 325).27
While it may be true that petitioners claim relates to the terms and conditions of the sale of AFPMBAIs
subdivision lot, this is overshadowed by the fact that since the Complaint 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 NATIONAL CONSTRUCTION
v. CA
Facts:On 18 November 1985, petitioner Philippine National Construction Corporation
(PNCC) executed a contract of lease with private respondents, stipulating to pay rent for
the use of land, at the monthly rate of P 20,000.00 payable yearly in advance. The said land
is to be used by petitioner as site for a rock crushing plant. The term of lease is for five years,
commencing on the date of issuance of an industrial clearance by the Ministry of Human Settlements
(Ministry).
On 7 January 1986 PNCC obtained a Temporary Use Permit from the Ministry for the
proposed rock crushing project. Nine days later private respondents wrote to PNCC, asking for the
first annual rental, and assuring that they have stopped considering proposals of other aggregates
plants in favor of PNCC.
In reply, PNCC argued that the contract must commence on the date of issuance by the Ministry of an
industrial clearance in their favor. It also expressed its desire to terminate the contract it executed with
respondents, due to financial, as well as technical difficulties. Respondents refused to accede
to PNCCs request for pre termination and on 19 May 1986, instituted an action against PNCC
for Specific Performance with Damages. Trial court ruled in favor of respondents and ordered PNCC to
pay rentals for two years, with legal interests plus attorneys fees. The Court of Appeals affirmed the
decision of the trial court upon appeal by PNCC; hence, this case
Invoking Article 1266 and the principle of rebus sic stantibus, petitioner asserts that it should be
released from the obligatory force of the contract of lease because the purpose of the contract did not
materialize due to unforeseen events and causes beyond its control, i.e., due to abrupt change in
political climate after the EDSA Revolution and financial difficulties.
Issue:W/N PNCC should be released from its contract with respondents due to unforeseen events and
causes beyond itscontrol.

Held: It is a fundamental rule that contracts, once perfected, bind both contracting parties, and
obligations arising therefrom have the force of law between the parties and should be complied with in
good faith.[13] But the law recognizes exceptions to the principle of the obligatory force of
contracts. One exception is laid down in Article 1266 of the Civil Code, which reads: "The debtor in
obligations to do shall also be released when the prestation becomes legally or physically impossible
without the fault of the obligor."
Petitioner cannot, however, successfully take refuge in the said article, since it is applicable only to
obligations "to do", and not to obligations "to give". [14] An obligation "to do" includes all kinds of work
or service; while an obligation "to give" is a prestation which consists in the delivery of a movable or
an immovable thing in order to create a real right, or for the use of the recipient, or for its simple
possession, or in order to return it to its owner. [15]
The obligation to pay rentals [16] or deliver the thing in a contract of lease [17] falls within the prestation
to give; hence, it is not covered within the scope of Article 1266. At any rate, the unforeseen event
and causes mentioned by petitioner are not the legal or physical impossibilities contemplated in said
article. Besides, petitioner failed to state specifically the circumstances brought about by the abrupt
change in the political climate in the country except the alleged prevailing uncertainties in
government policies on infrastructure projects.
The principle of rebus sic stantibus[18] neither fits in with the facts of the case. Under this theory, the
parties stipulate in the light of certain prevailing conditions, and once these conditions cease to exist
the contract also ceases to exist. [19] This theory is said to be the basis of Article 1267 of the Civil Code,
which provides:
ART. 1267. When the service has become so difficult as to be manifestly beyond the
contemplation of the parties, the obligor may also be released therefrom, in whole or in part.
This article, which enunciates the doctrine of unforeseen events, is not, however, an absolute
application of the principle of rebus sic stantibus, which would endanger the security of contractual
relations. The parties to the contract must be presumed to have assumed the risks of unfavorable
developments. It is therefore only in absolutely exceptional changes of circumstances that equity
demands assistance for the debtor.[20]
In this case, petitioner wants this Court to believe that the abrupt change in the political climate of the
country after the EDSA Revolution and its poor financial condition rendered the performance of the
lease contract impractical and inimical to the corporate survival of the petitioner.
This Court cannot subscribe to this argument. As pointed out by private respondents:[21]
It is a matter of record that petitioner PNCC entered into a contract with private respondents
on November 18, 1985. Prior thereto, it is of judicial notice that after the assassination of
Senator Aquino on August 21, 1983, the country has experienced political upheavals, turmoils,
almost daily mass demonstrations, unprecedented, inflation, peace and order deterioration,
the Aquino trial and many other things that brought about the hatred of people even against
crony corporations. On November 3, 1985, Pres. Marcos, being interviewed live on U.S.
television announced that there would be a snap election scheduled for February 7, 1986.
On November 18, 1985, notwithstanding the above, petitioner PNCC entered into the contract
of lease with private respondents with open eyes of the deteriorating conditions of the country.
Anent petitioners alleged poor financial condition, the same will neither release petitioner from the
binding effect of the contract of lease. As held in Central Bank v. Court of Appeals, [22] cited by the
private respondents, mere pecuniary inability to fulfill an engagement does not discharge a contractual
obligation, nor does it constitute a defense to an action for specific performance.

With regard to the non-materialization of petitioners particular purpose in entering into the contract
of lease, i.e., to use the leased premises as a site of a rock crushing plant, the same will not invalidate
the contract. The cause or essential purpose in a contract of lease is the use or enjoyment of a thing.
[23]
As a general principle, the motive or particular purpose of a party in entering into a contract does
not affect the validity or existence of the contract; an exception is when the realization of such motive
or particular purpose has been made a condition upon which the contract is made to depend. [24] The
exception is not apply here.
According to petitioner, the award of P492,000 representing the rent for two years is excessive,
considering that it did not benefit from the property. Besides, the temporary permit, conformably with
the express provision therein, was deemed automatically revoked for failure of petitioner to use the
same within one year from the issuance thereof. Hence, the rent payable should only be for one year.
Petitioner cannot be heard to complain that the award is excessive. The temporary permit was valid
for two years but was automatically revoked because of its non-use within one year from its
issuance. The non-use of the permit and the non-entry into the property subject of the lease contract
were both imputable to petitioner and cannot, therefore, be taken advantage of in order to evade or
lessen petitioners monetary obligation. The damage or prejudice to private respondents is beyond
dispute. They unquestionably suffered pecuniary losses because of their inability to use the leased
premises. Thus, in accordance with Article 1659 of the Civil Code, [25] they are entitled to
indemnification for damages; and the award of P492,000 is fair and just under the circumstances of
the case.
MAGAT, JR. v. CA
Facts:
Issue:
Held: The contract was valid; the radio transceivers were not contraband.
"Contraband" generally refers to "any property which is unlawful to produce or possess." It refers
to goods which are exported and imported into a country against its laws. [38]
In declaring the contract void ab initio, the Court of Appeals ruled that the importation of the
transceivers meant the inevitable passing of such goods through Philippine Ports, where the LOI and
the Administrative Circular have to be observed and applied with full force and effect. [39] The Court of
Appeals declared that the proposed importation of such goods was contrary to law, hence, the nullity
of the contract.[40]
We do not agree. The contract was not void ab initio. Nowhere in the LOI and Admin. Circular is
there an express ban on the importation of transceivers.
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]
Affirming the validity of the contract, we next discuss whether the contract was breached.
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.
Even if we assume that there was a breach of contract, damages cannot be awarded. Damnum
absque injuria.
There was no bad faith. [47] Bad faith does not simply connote bad judgment or negligence. It
imports a dishonest purpose or some moral obliquity and conscious doing of wrong. It means a breach
of a known duty through some motive or interest or ill will that partakes of the nature of fraud.
[48]
Guerrero honestly relied on the representations of the Radio Control Office and the Office of the
President.
True, Guerrero borrowed equipment from the Subic Naval Base authorities at zero cost. [49] This
does not automatically translate to bad faith. Guerrero was faced with the danger of the cancellation of
his contract with Subic Naval Base. He borrowed equipment as a prudent and swift alternative. There
was no proof that he resorted to this option with a deliberate and malicious intent to dishonor his
contract with Victorino. An award of damages surely cannot be based on mere hypotheses,
conjectures and surmises. Good faith is presumed, the burden of proving bad faith rests on the one
alleging it.[50] Petitioners did not effectively discharge the burden in this case.