Union Bank vs. DBP (GR. No.

191555, January 20, 2014)

Topic: Compensation
Facts:
Foodmasters, Inc. (FI) had outstanding loan obligations to both Union Bank’s predecessor-in-
interest, Bancom Development Corporation (Bancom), and to DBP.

FI and DBP, among others, entered into a Deed of Cession of Property In Payment of
Debt7 (dacion en pago) whereby the former ceded in favor of the latter certain properties
(including a processing plant in Marilao, Bulacan [processing plant]) in consideration of the
following: (a) the full and complete satisfaction of FI’s loan obligations to DBP; and (b) the
direct assumption by DBP of FI’s obligations to Bancom in the amount of ₱17,000,000.00
(assumed obligations).8

On the same day, DBP, as the new owner of the processing plant, leased back 9 for 20 years the
said property to FI (Lease Agreement) which was, in turn, obliged to pay monthly rentals to be
shared by DBP and Bancom.

DBP also entered into a separate agreement 10 with Bancom (Assumption Agreement) whereby
the former: (a) confirmed its assumption of FI’s obligations to Bancom; and (b) undertook to
remit up to 30% of any and all rentals due from FI to Bancom (subject rentals) which would
serve as payment of the assumed obligations, to be paid in monthly installments

on May 23, 1979, FI assigned its leasehold rights under the Lease Agreement to Foodmasters
Worldwide, Inc. (FW);11 while on May 9, 1984, Bancom conveyed all its receivables, including,
among others, DBP’s assumed obligations, to Union Bank.12

Claiming that the subject rentals have not been duly remitted despite its repeated demands,
Union Bank filed, on June 20, 1984, a collection case against DBP before the RTC, docketed as
Civil Case No. 7648.13 In opposition, DBP countered, among others, that the obligations it
assumed were payable only out of the rental payments made by FI. Thus, since FI had yet to pay
the same, DBP’s obligation to Union Bank had not arisen.

The RTC find the complaint meritorious but the CA  ruled that DBP did not default in its
obligations to remit the subject rentals to Union Bank precisely because it had yet to receive the
rental payments of FW.
Issue:
whether or the denial of Union Bank’s motion to affirm legal compensation is valid?
Ruling:
Yes. legal compensation could not have taken place between these debts for the apparent reason
that requisites 3 and 4 under Article 1279 of the Civil Code are not present. Since DBP’s
assumed obligations to Union Bank for remittance of the lease payments are – in the Court’s
words in its Decision dated January 13, 2004 in G.R. No. 155838 – " contingent on the prior
payment thereof by [FW] to DBP," it cannot be said that both debts are due (requisite 3 of
Article 1279 of the Civil Code). Also, in the same ruling, the Court observed that any deficiency
that DBP had to make up (by December 29, 1998 as per the Assumption Agreement) for the full
satisfaction of the assumed obligations " cannot be determined until after the satisfaction of
Foodmasters’ obligation to DBP." In this regard, it cannot be concluded that the same debt had
already been liquidated, and thereby became demandable (requisite 4 of Article 1279 of the Civil
Code).

Compensation is defined as a mode of extinguishing obligations whereby two persons in their

capacity as principals are mutual debtors and creditors of each other with respect to equally
liquidated and demandable obligations to which no retention or controversy has been timely
commenced and communicated by third parties.53 The requisites therefor are provided under
Article 1279 of the Civil Code which reads as follows:

Art. 1279. In order that compensation may be proper, it is necessary:

(1) That each one of the obligors be bound principally, and that he be at the same time a
principal creditor of the other;

(2) That both debts consist in a sum of money, or if the things due are consumable, they
be of the same kind, and also of the same quality if the latter has been stated;

(3) That the two debts be due;

(4) That they be liquidated and demandable;

(5) That over neither of them there be any retention or controversy, commenced by third
persons and communicated in due time to the debtor.1awp++

WHEREFORE, the petition is DENIED

Dalton v. FGR Realty and Development Corp., G.R. No. 172577, January 19, 2011
Topic:
Facts:
A parcel of land owned by respondent Flora R. Dayrit was leased to petitioners Dalton, et. al.
Eventually, the land was sold to respondent FGR Realty and Development Corporation. FGR
Realty and Dayrit decided not to accept payments from Dalton, et. al.for the purpose of
terminating the lease agreements. Dalton, et. al. filed a complaint with the Regional Trial Court
and attached was a consignation of the rental payments. However, they failed to notify the other
party of such action. FGR Realty and Dayrit withdrew the consigned amount with reservation to
question the validity of the consignation.
ISSUE:
Whether or not the consignation made by Dalton, et. al. is void
Ruling:
Petition DENIED. Compliance with the requisites of a valid consignation is mandatory. Failure
to comply strictly with any of the requisites will render the consignation void. There is no valid
consignation made by Dalton for she did not give notice to the defendants of her intention to so
consign her rental payments
Consignation is the act of depositing the thing due with the court or judicial authorities whenever
the creditor cannot accept r refuses to accept payment and generally requires a prior tender of
payment.
Under Art. 1257 of our Civil Code, in order that consignation of the thing due may release the
obligor, it must first be announced to the persons interested in the fulfillment of the obligation.
The consignation shall be ineffectual if it is not made strictly inconsonance with the provisions
which regulate payment.
The requisites of consignation are as follows:

1. The existence of a valid debt.
2. Valid prior tender, unless tender is excuse [sic];
3. Prior notice of consignation (before deposit)
4. Actual consignation (deposit);
5. Subsequent notice of consignation
The requisites of consignation are as follows:

1. The existence of a valid debt.
2. Valid prior tender, unless tender is excuse [sic];
3. Prior notice of consignation (before deposit)
4. Actual consignation (deposit);
5. Subsequent notice of consignation
The requisites of consignation are as follows:

1. The existence of a valid debt.
2. Valid prior tender, unless tender is excuse [sic];
3. Prior notice of consignation (before deposit)
4. Actual consignation (deposit);
5. Subsequent notice of consignation
Requisites:
The existence of valid debt
Valid prior tender, unless tender is excuse
Prior notice of consignation (before deposit) -missing
Actual consignation (deposit)
Subequent notice of consignation- missing

Spouses Oscar and Thelma Cacayorin v. Armed Forces and Police Mutual Benefit Association,
Inc., G.R. No. 171298, April 15, 2013
Topic:
FACTS:
Oscar Cacayorin is a member of Armed Forces and Police Mutual Benefit Association
Inc. (AFPMBA). In 1994, Oscar and his wife, Thelma applied to purchase a piece of property
owned by AFPMBA located in Puerto Princesa through a loan facility. To gain financing, the
petitioners entered a Loan and Mortgage Agreement with Rural Bank of San Teodoro under the
auspices of PAG-IBIG.
Unfortunately, the arrangement between PAG-IBIG and the Rural bank did not push through; the
Rural bank was closed and was placed under receivership by the Philippine Deposit
Insurance Corporation (PDIC). Despite the closure though, AFPMBAI somehow was
able to take possession of petitioners’ loan documents.
It so happened also that after AFPMBAI made a demand for payment; petitioners were unable to
pay the loan/consideration for the property .In July 2003, petitioners filed a Civil Case with the
RTC about a Complaint for consignation of loan payment, recovery of title and cancellation of
mortgage annotation against AFPMBAI, PDIC and the Register of Deeds of Puerto Princesa
City.
ISSUE:
Whether or not there is a valid consignation albeit prior tender of payment
Whether or not the court can exercise authority over the issue of consignation with
regard to contractual and legal obligations of parties in a sale of subdivision lots
HELD:
AFFIRMATIVE. Under Article 1256 of the Civil Code, the debtor shall be released
from responsibility by the consignation of the thing or sum due, without need of prior
tender of payment, when the creditor is absent or unknown, or when he is incapacitated to
receive the payment at the time it is due, or when two or more persons claim the same
right to collect, or when the title to the obligation has been lost.
Applying Article 1256 to the petitioners’ case, with regards to their allegations in their
Complaint, the Court finds that a case for consignation has arised, 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 , it appears that petitioners were not informed thereof, nor made privy thereto.
On the question of jurisdiction, Supreme Court decided that petitioners’ case should be tried in
the Puerto Princesa RTC, and not the HLURB. Consignation is necessarily judicial, 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

Ever Electrical Manufacturing, Inc/. Vicente C. Go And George C. Go Vs. Philippine Bank Of
Communications (Pbcom), G.R. No. 187822-23, August 3, 2016
Topic:
Facts:
On December 13, 2002, Ever, represented by Vicente, took out a loan from PBCom in the
amount of P65,000,000.00 for its working capital. As security, Ever mortgaged two
parcels of land.
On February 14, 2003, the parties entered into a compromise agreement whereby Vicente
voluntarily undertook to pay for Ever's loan with PBCom. Under the terms of the
compromise agreement, Vicente would make partial payments as stated in the promissory note
with a caveat that any failure on his part to pay the installment due would make the whole
amount immediately demandable.
However, Vicente was not able to make the necessary payments as stipulated in the compromise
agreement. PBCom, thus, filed with the RTC a motion for execution. PBCom alleged that
Vicente violated the terms of the compromise agreement for non-payment of installments
from September to December 2003 and the first quarter of 2004. It prayed that a writ of
execution be issued per the terms of the compromise agreement.
Issue:
Whether or not there was novation of the Partial Judgment dated July 23, 2001?
Held:
Novation is never presumed. It must be established that the old and new contracts are
incompatible on all points, or that the will to novate appear by express agreement of the parties
or acts of equivalent import. In the absence of an express provision, a contract may still
be considered novated impliedly if it passes the test of incompatibility, that is, whether the
contracts can stand together, each one having an independent existence.
In the early case of Santos v. Reyes, et al., the Court held that there was no novation
where under the original contract consisting of a principal debtor and a surety, the latter
subsequently made an agreement with the creditor to be bound as a principal for the same
obligation. There, the Court stated that there can be no effective novation if the contract was
not extinguished by an instrument subsequently executed therefor.

Odiamar vs. Odiamar Valencia (GR No. 213582, June 28, 2017)
Topic:
Facts:
respondent Linda Odiamar Valencia (respondent) filed a motion for reconsideration ordering
petitioner Nympha S. Odiamar (petitioner) to pay respondent the amount of P1,010,049.00
representing the remaining balance of petitioner's debt to the latter in the original amount of
P1,400,000.00.

In said motion, respondent prays for the imposition of legal interest on the monetary award due
her.She likewise insists that petitioner's loan obligation to her is not just P1,400,000.00 but
P2,100,000.00 and, as such, she should be made to pay the latter amount
Issue:
W/N the motion for reconsideration should be granted?
Ruling:
Yes. Court notes that there are two (2) types of interest, namely, monetary interest and
compensatory interest. the right to recover interest arises only either by virtue of a contract
(monetary interest) or as damages for the delay or failure to pay the principal loan on which the
interest is demanded (compensatory interest)
 In this case, no monetary interest may be imposed on the loan obligation, considering that there
was no written agreement expressly providing for such but still subjected to compensatory
interest.
 in the absence of an express stipulation as to the rate of interest that would govern the parties,
the rate of legal interest for loans or forbearance of any money, goods or credits and the rate
allowed in judgments shall no longer be twelve percent (12%) per annum
When the obligation is breached, and it consists in the payment of a sum of money  i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in writing
and In the absence of stipulation, the rate of interest shall be 6% per annum to be computed from
default, i.e.,  from judicial or extrajudicial demand under and subject to the provisions of Article
1169 of the Civil Code.
WHEREFORE, the motion for reconsideration is PARTLY GRANTED

PNB v. Soriano, G.R. No. 164051, October 3, 2012

Topic:
Facts:
On March 20, 1997, [PNB] extended a credit facility in the form of [a] Floor Stock Line (FSL) in
the increased amount of Thirty Million Pesos (₱30 Million) to Lisam Enterprises, Inc. [LISAM]
wherein Soriano is the chairman and president of LISAM
For each availment, LISAM through [Soriano], executed 52 Trust Receipts (TRs). In addition to
the promissory notes, showing its receipt of the items in trust with the duty to turn-over the
proceeds of the sale thereof to [PNB]. However, Soriano gfailed to and refused to turn over the
said amount
failure to account for the proceeds of the sale of the motor vehicles, PNB, as previously adverted
to, filed a complaint-affidavit before the Office of the City Prosecutor of Naga City charging
Soriano with fifty two (52) counts of violation of the Trust Receipts Law, in relation to Article
315, paragraph 1(b) of the Revised Penal Code.
Issue:
whether the restructuring of LISAM’s loan account extinguished Soriano’s criminal liability.
Ruling:
No. Novation is one of the modes of extinguishment of obligations; 21 it is a single juridical act
with a diptych function. The substitution or change of the obligation by a subsequent one
extinguishes the first, resulting in the creation of a new obligation in lieu of the old

Art. 1292. In order that an obligation may be extinguished by another which substitutes the same,
it is imperative that it be so declared in unequivocal terms, or that the old and the new
obligations be on every point incompatible with each other.

contemplates two kinds of novation: express or implied. The extinguishment of the old
obligation by the new one is a necessary element of novation, which may be effected either
expressly or impliedly.

In order for novation to take place, the concurrence of the following requisites is indispensable:
(1) There must be a previous valid obligation;

(2) There must be an agreement of the parties concerned to a new contract;

(3) There must be the extinguishment of the old contract; and

(4) There must be the validity of the new contract

The Court look to whether there is an incompatibility between the Floor Stock Linesecured by
TRs and the subsequent restructured Omnibus Line which was supposedlyapproved by PNB.
The test of incompatibility is whether the two obligations can standtogether, each one having
its independent existence. If they cannot, they areincompatible and the latter obligation
novates the first.
The Court have scoured the records and found no incompatibility between the FloorStock Line
and the purported restructured Omnibus Line. While the restructuring wasapproved in principle,
the effectivity thereof was subject to conditions precedent such asthe payment of interest and
other charges, and the submission of the titles to the realproperties inTandang Sora, Quezon City.
Moreover, as asserted by Soriano in her counter-affidavit, the waiver pertains to penaltycharges
on the Floor Stock Line.
There is no showing that the waiver extinguished Sorianos obligation to "sell the merchandise
for cash for LISAMs account and to deliver the proceeds thereof to PNB to be applied against its
acceptance on LISAMs account." Soriano further agreed to hold the "vehicles and proceeds of
the sale thereof in Trust forthe payment of said acceptance and of any of its other indebtedness to
PNB."
Well-settled is the rule that, with respect to obligations to pay a sum of money, theobligation is
not novated by an instrument that expressly recognizes the old, changesonly the terms of
payment, adds other obligations not incompatible with the old ones, orthe new contract merely
supplements the old one.
Besides, novation does notextinguish criminal liability. It stands to reason therefore, that
Sorianos criminal liabilityunder the TRs subsists considering that the civil obligations under the
Floor Stock Linesecured by TRs were not extinguished by the purported restructured Omnibus
Line.
WHEREFORE, the petition is GRANTED

Stronghold Insurance Company, Inc. v. Tokyu Construction Company, G.R. Nos.

158820-21, June 5, 2009
Facts:
Respondent Tokyu Construction Company was awarded by Manila InternationalAirport
Authority a contract to construct NAIA terminal 2.2.Tokyu entered into a sub-contract agreement
with Gabriel Enterprise for theconstruction of storm drainage and sewage treatment plant in the
area. 3.
In relation with the agreement Gabriel Enterprise obtained a surety bond andperformance bond
with the petitioner Stronghold Insurance Company valid for theperiod of one year from the date
it was issued, in order for its work to be guaranteed.4.
Subsequently, Gabriel enterprise failed to satisfy its obligation on the maturity date. 5.Tokyu
Construction Company modified its sub-contract agreement and extended theperiod of
completion of the project. Gabriel Enterprise obtained another surety andperformance bond
from Tico Insurance Company because the one year performanceinsurance bond from
Stronghold Insurance already expired.
Gabriel Enterprise again defaulted. Tokyu made formal demands against Stronghold and Tico to
make good theirobligations under their respective performance and surety bonds.
Issue:
WON petitioner should be held liable on its bonds?
Ruling:
Yes. Petitioner contends that the principal contract (original subcontract agreement) was novated
by the revised scope of work and contract schedule, without notice to the surety, thereby
rendering the bonds invalid and ineffective.
Finally, it avers that no liability could attach because the subject bonds expired andwere replaced
by the Tico bonds. Petitioners liability was not affected by the revision of the contract Neither
was itextinguished because of the issuance of new bonds procured from Tico.
A contract of suretyship is an agreement whereby a party, called the surety,guarantees the
performance by another party, called the principal or obligor, of anobligation or undertaking in
favor of another party, called the obligee. By its very nature, under the laws regulating
suretyship, the liability of the surety is joint and several but is limited to the amount of the bond,
and its terms are determined strictly by the terms of the contract of suretyship in relation to the
principal contract between the obligor and the oblige
The SC stressed herein the nature of suretyship, which actually involves two types of
relationship the underlying principal relationship between the creditor(respondent) and the
debtor (Gabriel), and the accessory surety relationship between the principal (Gabriel) and the
surety (petitioner). The creditor accepts the surety’s solidary undertaking to pay if the debtor
does not pay. Such acceptance, however, does not change in any material way the
creditorsrelationship with the principal debtor nor does it make the surety an active party tothe
principal creditor-debtor relationship.
In other words, the acceptance does not give the surety the right to intervene in theprincipal
contract. The surety’s role arises only upon the debtors default, at which time, it can be directly
held liable by the creditor for payment as a solidary obligor
In the instant case, the revision of the subcontract agreement did not in any way make the
obligations of both the principal and the surety more onerous. The petitioner never assumed
added obligations, nor were there any additional obligations imposed, due to the modification of
the terms of the contract. Failure to receive any notice of such change did not, therefore,
exonerate petitioner from its liabilities as surety. Neither can petitioner be exonerated from
liability simply because the bonds it issued were replaced by those issued by Tico.
Thus, petitioner remains solidarily liable with Gabriel, subject only to the limitations on the
amount of its liability as provided for in the Bonds themselves.
New World v AMA
Facts:
New World and AMA entered a Contract of Lease for the period of 8 years wherein AMA will
occupy the second floor of the building of New World. It is also provided in the contract that
AMA may pre-terminate the contract by sending notice to New World at least six months before
its intended date
Encountered by financial constraints, AMA requested for the defernment of the annual increase
of the monthly rent. For this purpose, both parties entered an addendum to the contract of lease
July 2004, AMA removed all its equipment and vacate the place and send a letter to New World
for the immediate termination of contract. New World filed a complaint against AMA of the
following grounds: (1) unpaid two months rent (2) 3% monthly interest rate for the unpaid rent
(3) liquidated damages and (4) damages to lease.
Issue:
Whether AMA is liable to pay six months’ worth of rent as liquidated damages. –YES
Ruling:
Articles 1159 and 1306 provides that:

Art. 1159. Obligations arising from contracts have the force of law between the contracting
parties and should be complied with in good faith.

Art. 1306. The contracting parties may establish such stipulations, clauses, terms and conditions
as they may deem convenient, provided they are not contrary to law, morals, good customs,
public order, or public policy.
In the sphere of personal and contractual relations governed by laws, rules and regulations
created to promote justice and fairness, equity is deserved, not demanded. The application of
equity necessitates a balancing of the equities involved in a case, for “he who seeks equity must
do equity, and he who comes into equity must come with clean hands.” Persons in dire straits are
never justified in trampling on other persons’ rights. The actions of AMA smack of bad faith.
Hence, under the terms of the contract, and in light of the failure of AMA to show that it is
deserving of this Court’s indulgence, the payment of liquidated damages in an amount equivalent
to six months’ rent is proper

Paulino Ejercito v Oriental Assurance Corporation

Facts:
Oriental Assurance issued a surety bond in favor of FFV travel and Tours to accommodate the
company’s purchased of airline ticket from participating members of International Air Transport
Association worth 3 million. At the same day, petitioner and Somes executed a deed of
indemnity in favor of the respondent. Said surety bond was effective for one year but it was
renewed for another year. When FFV defaulted to its obligation, IATA demanded the payment
so Oriental Assurance heeded the demand. In return, Oriental send demand letter to petitioners
for the reimbursement of the said amount pursuant to their indemnity agreement.
The RTC ruled that there was no written agreement to show the intention of renewal of the
agreement while the CA ruled that petitioners cannot escape liability as they jad authorized
respondent to grant renewals or extensions based on the signatures of petitioners
Issue:
W/N petitioners are liable to indemnify the respondent under the deed of indemnity considering
that petitioners did not give their consent?
Ruling:
Yes. The contract of indemnity is the law between the parties.6 It is a cardinal rule in the
interpretation of a contract that if its terms are clear and leave no doubt on the intention of the
contracting parties, the literal meaning of its stipulation shall control.
“The said indemnities will be paid to the COMPANY as soon as demand is received from the
Creditor, or as soon as it becomes liable to make payment of any sum under the terms of the
above-mentioned Bond, its renewals, extension,
We authorize the COMPANY to accept in any case and at its entire discretion, from any of us,
payment on account of the pending obligation, and to grant extensions to any of us, to liquidate
said obligations, without necessity of previous knowledge or consent from the obligors.”
petitioners have expressly bound themselves to the contract, which provides for the terms
granting authority to the Company to renew the original bond. The terms of the contract are
clear, explicit and unequivocal. Therefore, the subsequent acts of the Company, through Somes,
that led to the renewal of the surety bond are binding on petitioners as well.
With regard to the contention that the Deed of Indemnity is a contract of adhesion, the Court has
consistently held that contracts of adhesion are not invalid per se and that their binding effects
have been upheld on numerous occasions. Having entered into the contract with full knowledge
of its terms and conditions, petitioners are estopped from asserting that they did so under the
ignorance of the legal effect of the contract or the undertaking.

Norton Resources v All Asia Bank Corporation

Facts:
Norton Resources applied for a loan of 3.8 million to All Asia Bank Corporation for the
construction of 160 housing units in Davao City. To speed up the processing of all documents,
petitioner offer a service/commitment fee of 320,000.00 for the construction of 160 housing units
or at 2,000 per unit. Petitioner defaulted in the payment of obligation and only constructed 35
units. On the other hand, HFC then acted as guarantor of Norton to pay on its behalf. \
Petitioner filed a complaint for sum of money against respondent for the return of 250, 000 as
mentioned in MOA that the 320,000 was to be paid on a per unit basis at 2,000 per unit which
was affirmed by RTC but later on reversed by the CA as the MOA mentioned nothing about the
said stipulation.
Issue:
W/N the petitioner is entitled for the recovery of the said amount?
Ruling:
No. Article 1370 of the Civil Code: "[i]f the terms of a contract are clear and leave no doubt
upon the intention of the contracting parties, the literal meaning of its stipulations shall control."
This provision is akin to the "plain meaning rule" applied by Pennsylvania courts, which
assumes that the intent of the parties to an instrument is "embodied in the writing itself, and
when the words are clear and unambiguous the intent is to be discovered only from the express
language of the agreement."
In this case, paragraph 4 of the MOA plainly states:
4. That the CLIENT offers and agrees to pay a commitment and service fee of THREE
HUNDRED TWENTY THOUSAND PESOS (P320,000.00), which shall be paid in two (2)
equal installments, on the same dates as the first and second partial releases of the proceeds of
the loan.
Therefore, the payment of P320,000.00 commitment/service fee mentioned in Exhibit "B" must
be paid in lump sum and not on a per unit basis. Consequently, we rule that [petitioner] is not
entitled to the return of P250,000.00
PREMIERE DEVELOPMENT BANK VS CENTRAL SURETY & INSURANCE COMPANY,
INC.579 SCRA 359
FACTS:
Respondent Central Surety & Insurance Company (Central Surety) acquired an industrial
loan worth six million pesos from petitioner Premiere Development Bank, evidenced by
Promissory Note. Should Central Surety fail to pay, it would be liable to Premiere Bank for:
(1) unpaid interest up to maturity date; (2) unpaid penalties up to maturity date; and (3) unpaid
balance of the principal.
To Secure Payment for the loan Central Surety executed a Deed of Assignment with Pledge in
favor of Premier Bank its proprietary share in Wack Wack and golf and country Club. Central
Surety had another commercial loan with Premiere Bank worth 40,898,000.00 pesos, again
by Promissory Note. To secure payment of the loan they were secured a real estate
mortgage over a Condominium Certificate. This was availed through a renewal of Central
Surety’s prior loan. It was stipulated in the contract that Premiere Bank as creditor would
have the right to decide to which the payment would be applied, and that there is no
need for an express demand from the creditor to make the obligations due and
demandable.
Central Surety issued a check worth 6,000,000.00 pesos and payable to Premiere Bank.
However, the latter returned such check and sent a letter, as part of a normal bank procedure,
demanding payment and threatening foreclosure of Central Surety’s securities, the pledge and
real estate mortgage, should it fail to pay within ten days from date of receipt. This was
alleged by the latter to be an act of waiving Premiere Bank’s right to apply payments.
Central Surety moves for the release of the Wack Wack Membership pledge for their supposed
paid loan. The lower court ruled in favor of Premiere Bank, while the Court of Appeals reversed
the prior decision of the lower court.
ISSUE:
(1) Whether or not Premiere Bank waived its right of application of payments on the
loans of Central Surety;
(2) Whether the release of the Wack Wack Membership pledge is in order.
HELD:
No. Relevant to the case is the statutory provision on application of payments, particularly
Article 1252 of the Civil Code. “He who has various debts of the same kind in favorof one and
the same creditor, may declare at the time of making the payment, to which of them the same
must be applied.
In the case at bench, the records show that Premiere Bank and Central Surety entered into several
contracts of loan, securities by way of pledges, and suretyship agreements. In at least two (2)
promissory notes between the parties, Promissory Note No. 714-Y and Promissory Note No.
376-X, Central Surety expressly agreed to grant Premiere Bank the authority to apply any and all
of Central Surety’s payments
In the instant case, it was stipulated in the contract that the right to apply payments would be
enjoyed by the Premiere Bank. It cannot be understood that such granted right was waived
by Premiere Bank. As all debts were already due, the subsequent demand made by Premiere
Bank cannot be equated with a waiver of the right to demand payment of all the matured
obligations of Central Surety to Premiere Bank.
When Central Surety issued a check as payment to Premiere Bank, it knew very well that it had
several loans which granted Premiere Bank the right to apply its payment.
(2) No. Considering that the parties are bound by a contract of adhesion, where Central
Surety imposed a ready-made contract on Premiere Bank, the latter had freedom to reject or
adhere to the contract. Central Surety, being a well-established personality, would also not be
considered as a disadvantaged party. The contract between the parties falls on the dragnet clause,
which is one “specifically phrased to subsume all debts of past and future origins.” The security
clause in the instant case is that of a continuing pledge, wherein the Wack Wack Membership
served as security for the standing obligation, also for future advancements. Such security
worth 15,000,000.00 pesos was clearly worth more than the industrial loan worth 6,000,000.00
pesos, which was understood to secure the ballooning debt of the Central Surety.
As all demandable obligations are yet to be fulfilled, the release of the Wack Wack membership
as security cannot yet to be done as prayed for by Central Surety.
Wherefore, the instant petition is partially granted. The decision of the Court of Appeals isset
aside and the decision of the Regional Trial Court of Makati is reinstated with modification.

Clemente v. CA, Jalandoon (GR. No. 175483, October 14, 2015)

Facts:
Adela owned three (3) adjoining parcels of land in Quezon City, subdivided as Lots 32, 34 and
35-B. Sometime in 1985 and 1987, Adela simulated the transfer of Lots 32 and Lot 34 to her two
grandsons (Carlos Jr and Dennis Shotwell).
On April 18, 1989, prior to Adela and petitioner’s departure for the United States, Adela
requested Carlos Jr. and Dennis to execute a deed of reconveyance over Lots 32 and 34 which
were in fact executed and registered with the Register of Deeds.
On April 25, 1989, Adela executed a deed of absolute sale11 over Lots 32 and 34, and their
improvements, in favor of petitioner, bearing on its face the price of ¬250,000.00. On the same
day, Adela also executed a special power of attorney (SPA) in favor of petitioner. Petitioner’s
authority under the SPA included the power to administer, take charge and manage, for Adela’s
benefit, the Properties and all her other real and personal properties in the Philippines.
When petitioner returned to the Philippines, she registered the sale over Lots 32 and 34. Soon
thereafter, petitioner sought to eject Annie and Carlos Sr who thereafter filed a complaint for
reconveyance of the property. They alleged that Adela only wanted to help petitioner travel to
the United States, by making it appear that petitioner has ownership of the Properties. They
further alleged that similar to the previous simulated transfers to Carlos Jr. and Dennis, petitioner
also undertook and warranted to execute a deed of reconveyance in favor of the deceased over
the Properties, if and when Adela should demand the same.
Issue:
Whether or not the contracts of sale to petitioner were simulated
Ruling:
YES. The Deeds of Absolute Sale between petitioner and the late Adela Shotwell are null and
void for lack of consent and consideration. While the Deeds of Absolute Sale appear to be valid
on their face, the courts are not completely precluded to consider evidence aliunde in
determining the real intent of the parties.
The Civil Code defines a contract as a meeting of minds between two persons whereby one binds
himself, with respect to the other, to give something or to render some service. Article 1318
provides that there is no contract unless the following requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract; and
(3) Cause of the obligation which is established.
Here, there was no valid contract of sale between petitioner and Adela because their consent was
absent. The contract of sale was a mere simulation. Simulation takes place when the parties do
not really want the contract they have executed to produce the legal effects expressed by its
wordings.
In determining the true nature of a contract, the primary test is the intention of the parties. If the
words of a contract appear to contravene the evident intention of the parties, the latter shall
prevail. Such intention is determined not only from the express terms of their agreement, but also
from the contemporaneous and subsequent acts of the parties. This is especially true in a claim of
absolute simulation where a colorable contract is executed.
WHEREFORE, the petition is DENIED.

The Roman Catholic Church v. Regino Pante, G.R. No. 174118, April 11, 2012
Facts:
The Church, represented by the Archbishop of Caceres, owned a 32-square meter lot. the
Church contracted with respondent Regino Pante for the sale of the lot on the belief that the latter
was an actual occupant of the lot. the Church sold in favor of the spouses Nestor and Fidela Rubi
(spouses Rubi) a 215-square meter lot that included the lot previously sold to Pante. The spouses
Rubi asserted their ownership by erecting a concrete fence over the lot sold to Pante, effectively
blocking Pante and his family’s access from their family home to the municipal road. 
Pante instituted with the RTC an action to annul the sale between the Church and the spouses
Rubi while The Church filed its answer with a counterclaim, seeking the annulment of its
contract with Pante. The Church alleged that its consent to the contract was obtained by fraud
when Pante, in bad faith, misrepresented that he had been an actual occupant
the RTC annulled the contract between the Church and Pante, pursuant to Article 1390 of the
Civil Code. It considered the three-year delay in completing the payment fatal to Pante’s claim
over the subject lot; it ruled that if Pante had been prompt in paying the price, then the Church
would have been estopped from selling the lot to the spouses Rubi.
Pante appealed to the CA the CA granted Pante’s appeal and reversed the RTC’s ruling. The CA
characterized the contract between Pante and the Church as a contract of sale, since the Church
made no express reservation of ownership until full payment of the price is made.
Issue:
Whether or not there exist a vitiated consent on contract of sale between the church and Pante?
Ruling:
No. Consent is an essential requisite of contracts 12 as it pertains to the meeting of the offer and
the acceptance upon the thing and the cause which constitute the contract. Where consent,
however, is given through mistake, violence, intimidation, undue influence, or fraud, the contract
is deemed voidable.15 However, not every mistake renders a contract voidable

Article 1331. In order that mistake may invalidate consent, it should refer to the substance of the
thing which is the object of the contract, or to those conditions which have principally moved
one or both parties to enter into the contract. For mistake as to the qualification of one of the
parties to vitiate consent, two requisites must concur:

1. the mistake must be either with regard to the identity or with regard to the qualification
of one of the contracting parties; and

2. the identity or qualification must have been the principal consideration for the
celebration of the contract.

Also, Article 1390 of the Civil Code declares that voidable contracts are binding, unless annulled
by a proper court action. From the time the sale to Pante was made and up until it sold the
subject property to the spouses Rubi, the Church made no move to reject the contract with Pante;
it did not even return the down payment he paid. In the absence of any vitiation of consent, the
contract between the Church and Pante stands valid and existing.
Wherefore, we deny the petition
Milagros De Belen Vda. De Cabalu, et. al. v. Sps. Renato Dolores Tabu and Laxamana, G.R. No.
188417, September 24, 2012
Facts:
Faustina Maslum owned a 9,000 square meter registered and died without any children. Before
she died, She left a holographic will, dated July 27, 1939, assigning and distributing her property
to her nephews and nieces but the will was not probated. Domingo Laxamana, son of one of the
heirs executed a Deed of Sale of Undivided Parcel of Land disposing of his 9,000 square meter
share of the land/
to give effect to the holographic will, the forced and legitimate heirs of Faustina executed a Deed
of Extra-Judicial Succession with Partition and Domingo sold 4,500 square meters of the 9,000
square meters to his nephew, Eleazar Tabamo
 two months after his death, Domingo purportedly executed a Deed of Absolute Sale of TCT No.
281353 in favor of respondent Renato Tabu (Tabu) and Tabu and his wife, Dolores Laxamana
(respondent spouses), subdivided the said lot
respondent Dolores Laxamana-Tabu, together with Julieta Tubilan-Laxamana, Teresita
Laxamana, Erlita Laxamana, and Gretel Laxamana, the heirs of Domingo, filed an unlawful
detainer action, docketed as Civil Case No. 7106, against Meliton Cabalu, Patricio Abus, Roger
Talavera, Jesus Villar, Marcos Perez, Arthur Dizon, and all persons claiming rights under them.
petitioners claimed that they were the lawful owners of the subject property because it was sold
to their father, Laureano Cabalu, by Domingo
respondent spouses countered that the deed of sale from which the petitioners anchored their
right over the 9,000 square meter property was null and void because in 1975, Domingo was not
yet the owner of the property, as the same was still registered in the name of Faustina.
Issue:
Whether or not  the Deed of Sale of Undivided Parcel of Land covering the 9,000 square meter
property executed by Domingo in favor of Laureano Cabalu on March 5, 1975, is valid?
Ruling:
No. the RTC and the CA found that the evidence established that the March 5, 1975 Deed of Sale
of Undivided Parcel of Land executed by Domingo in favor of Laureano Cabalu was a fictitious
and simulated document.  the sale cannot be deemed valid because, at that time, Domingo was
not yet the owner of the property.
Article 1347 of the Civil Code, "No contract may be entered into upon future inheritance except
in cases expressly authorized by law. The law applies when the following requisites concur: (1)
the succession has not yet been opened; (2) the object of the contract forms part of the
inheritance; and (3) the promissor has, with respect to the object, an expectancy of a right which
is purely hereditary in nature
In this case, at the time the deed was executed, Faustinas will was not yet probated; the object of
the contract, the 9,000 square meter property, still formed part of the inheritance of his father
from the estate of Faustina; and Domingo had a mere inchoate hereditary right therein.
WHEREFORE, the petition is partially GRANTED.

Heirs of Dr. Mario S. Intac and Angelina Mendoza-Intac v. CA, G.R. No. 173211, October 11,
2012
Facts:
 Ireneo Mendoza (Ireneo), married to Salvacion Fermin (Salvacion), was the owner of the subject
property and had two children. Ireneo, also took care of his niece, Angelina, since she was three
years old until she got married with the consent of Salvacion, executed a deed of absolute sale of
the property in favor of Angelina and her husband, Mario (Spouses Intac). The controversy arose
when respondents sought the cancellation of TCT No. 242655, claiming that the sale was only
simulated and, therefore, void. Spouses Intac resisted, claiming that it was a valid sale for a
consideration
respondents alleged, among others, that when Ireneo was still alive, Spouses Intac borrowed the
title of the property (TCT No. 106530) from him to be used as collateral for a loan from a
financing institution while Spouses Intac countered, among others, that the subject property had
been transferred to them based on a valid deed of absolute sale and for a valuable consideration.
The RTC ruled, among others, that the sale between Ireneo and Salvacion, on one hand, and
Spouses Intac was null and void for being a simulated one considering that the said parties had
no intention of binding themselves at all while The CA believed that Ireneo agreed to have the
title transferred in the name of the Spouses Intac to enable them to facilitate the processing of the
mortgage and to obtain a loan.
Petitioners claim that respondents have validly gave their consent to the questioned sale of the
subject property. The signatures of Ireneo and Salvacion meant that they had knowingly and
willfully entered into such agreement and that they were prepared for the consequences of their
act. On the other hand, respondents averred that Spouses Intac abused the trust and affection of
Ireneo and Salvacion by arrogating unto themselves the ownership of the subject property
Issue:
Whether or not the Deed of Absolute Sale, was a simulated contract?
Ruling:

Yes. When the essential requisites of a contract are present and the simulation refers only to the
content or terms of the contract, the agreement is absolutely binding and enforceable between the
parties and their successors in interest. In absolute simulation, there is a colorable contract but it
has no substance as the parties have no intention to be bound by it. The Court is one with the
courts below that no valid sale of the subject property actually took place between the parties.
There was simply no consideration and no intent to sell it.

Thus, the Court agrees with the courts below that the questioned contract of sale was only for the
purpose of lending the title of the property to Spouses Intac to enable them to secure a loan.
Their arrangement was only temporary and could not give rise to a valid sale. Where there is no
consideration, the sale is null and void ab initio.

Moreover, Art. 1471 of the Civil Code, which provides that "if the price is simulated, the sale is
void," also applies to the instant case, since the price purportedly paid as indicated in the contract
of sale was simulated for no payment was actually made. In this case, point to the fact that the
intention of Ireneo was just to lend the title to the Spouses Intac to enable them to borrow money
and put up a hospital in Sta. Cruz, Laguna. Clearly, the subject contract was absolutely simulated
and, therefore, void.
WHEREFORE, the petition is DENIED.

Tating v. Tating Marcella, et al., G.R. No. 155208, March 27, 2007
Facts:
 Daniela sold the subject property to her granddaughter, herein petitioner Nena Lazalita Tating
(Nena). The contract of sale was embodied in a duly notarized Deed of Absolute Sale executed
by Daniela in favor of Nena but the land remained in possession of Daniela. Sometime later,
Daniela executed a sworn statement claiming that she had actually no intention of selling the
property; the true agreement between her and Nena was simply to transfer title over the subject
property in favor of the latter to enable her to obtain a loan by mortgaging the subject property
for the purpose of helping her defray her business expenses
When Daniela died, her children represented her cause and are demanding from Nena the return
of their rightful shares over the subject property. Nena denied that any fraud or misrepresentation
attended the execution of the subject Deed of Absolute Sale. The trial and appellate court ruled
that the deed of sale was null and void because the contract was a simulated one.
Issue:
Whether or not the contract of deed of absolute sale entered by Nena and Daniella a simulated
one?
Ruling:
No. The Court finds that both the trial court and the CA committed error in giving the sworn
statement probative weight. Since Daniela is no longer available to take the witness stand as she
is already dead, the RTC and the CA should not have given probative value on Daniela’s sworn
statement for purposes of proving that the contract of sale between her and petitioner was
simulated and that, as a consequence, a trust relationship was created between them. The legal
presumption is in favor of the validity of contracts and the party who impugns its regularity has
the burden of proving its simulation
The first paragraph of Article 1498 of the Civil Code states that when the sale is made through a
public instrument, the execution thereof shall be equivalent to the delivery of the thing which is
the object of the contract, if from the deed the contrary does not appear or cannot clearly be
inferred
Thus, in light of the circumstances of the present case, it is of no legal consequence that
petitioner did not take actual possession or occupation of the disputed property after the
execution of the deed of sale in her favor because she was already able to perfect and complete
her ownership of and title over the subject property.
WHEREFORE, the petition is GRANTED

Spouses Rigor v. Consolidated Orix Leasing and Finance Corporation, G.R. No. 136423, August
20, 2002
Facts:

Petitioners obtained a loan from private respondent Consolidated Orix Leasing and Finance
Corporation. Petitioners executed a promissory note where it also provides that default in paying
any installment renders the entire unpaid amount due and payable. To secure payment of the
loan, petitioners executed in favor of private respondent a deed of chattel mortgage over two
dump trucks

Petitioners failed to pay several installments thus respondent sought to foreclose the chattel
mortgage by filing a complaint before the Regional Trial Court of Dagupan City. Petitioners
moved to dismiss the complaint on the ground of improper venue based on a provision in the
promissory note that the proper court should be in Makati City, Philippines.

Private respondent opposed the motion to dismiss and argued that venue was properly laid in
Dagupan City based on a provision in the deed of chattel mortgage that in case of litigation,
complete jurisdiction is given the proper court of the city of Makati or any proper court within
the province of Rizal, or any court in the city, or province where the holder/mortgagee has a
branch office.

The Dagupan trial court denied petitioners’ motion to dismiss and motion for reconsideration so
as the Court of Appeals.

Issue:

Whether or not venue was properly laid under the provisions of the chattel mortgage contract in
the light of article 1374 of the Civil Code?

Ruling:
Yes. Under the promissory note, petitioners are obliged to pay private respondent the loan in
accordance with the agreed schedule.  To secure the promissory note, petitioners constituted a
chattel mortgage in favor of private respondent over two dump trucks.  Both contracts contain
venue provisions.

The chattel mortgage constituted over the two dump trucks is an accessory contract to the loan
obligation as embodied in the promissory note.[11] The chattel mortgage cannot exist as an
independent contract since its consideration is the same as that of the principal contract. [12] A
principal obligation is an indispensable condition for the existence of an accessory
contract.  Indeed, contracts may be classified according to the degree of dependence. [13] Loans,
sales or leases are classified as principal contracts while pledges, mortgages and suretyships are
classified as accessory contracts because their existence is dependent upon the principal
obligations they guarantee or secure

Art. 1374.  The various stipulations of a contract shall be interpreted together, attributing to the
doubtful ones that sense which may result from all of them taken jointly.

xxx.”

Applying the doctrine to the instant case, we cannot sustain petitioners’ contentions.  The
promissory note and the deed of chattel mortgage must be construed together.  Private
respondent explained that its older standard promissory notes confined venue in Makati City
where it had its main office. After it opened a branch office in Dagupan City, private respondent
made corrections in the deed of chattel mortgage, but due to oversight, failed to make the
corresponding corrections in the promissory notes.
WHEREFORE, the petition is DENIED

Philippine National Construction Corp. v. CA, 272 SCRA 183, GR No. 165433, 1997
Facts:
A contract for the construction of the Philippine Merchant Marine Academy’s (PMMA’s)
Replication Project located in San Marcelino, Zambales, was entered into between the PNCC
and PMMA. Included in the scope of works for the Replication Project was the construction of a
gymnasium building. The construction of said gymnasium was subcontracted by PNCC to MCS
under a Subcontract Agreement. PNCC certified that MCS had satisfactorily completed the
construction of the gymnasium building but PNCC failed to pay the balance of the contract price.
MCS maintained that notwithstanding the fact that the construction of the gymnasium had been
satisfactorily completed as early as 1999, PNCC still failed to fully satisfy its obligation to pay
the price of the construction project under the Subcontract Agreement despite several written
demands. For its defense, PNCC alleged that the request for arbitration was premature, as MCS
had no cause of action against PNCC since the latter is still in the process of paying its obligation
to MCS.
MCS then invoke the manner of payment stated in their subcontract agreement as follows:

Manner of Payment

4.2. The price referred to in Article 111 above shall be paid by PNCC to Subcontractor in the
following manner and subject to receipt by PNCC of corresponding payment/s from PMMA:

b. thru semi-monthly progress billings computed based on accomplishment as approved/accepted

by PNCC/Owner and the agreed unit prices

Issue:
 W/n respondent MCS has a right to file a cause of action and be paid for its services in
constructing the gymnasium under the Subcontractors Agreement?
Ruling:
Yes.  it has been held that where a contract is to be performed periodically, as by installments,
each failure to pay an installment constitutes a cause of action and can be subject of a separate
suit as the installment falls due, or can be included in the pending or supplemental pleading
(Larena v. Villanueva, 53 Phil. 923 [1928])
A cause of action is the fact or combination of facts which affords a party a right to judicial
interference in his behalf. The requisites for a cause of action are: (a) a right in favor of the
plaintiff by whatever means and under whatever law it arises or is created, (b) an obligation on
the part of the defendant to respect and not to violate such right; and, (c) an act or omission on
the part of the defendant constituting a violation of the plaintiff’s right or breach of the obligation
of the defendant to the plaintiff.
it is undisputed that the gymnasium building project subject of the Subcontract Agreement had
been satisfactorily completed by MCS as early as March 1999 and correspondingly
acknowledged by PNCC in a Certificate of Acceptance dated 6 April 2000 however, despite the
lapse of more than three years from the completion of the construction project, PNCC still failed
to settle its obligation in full.
In continuing to delay the full satisfaction of its obligation under the Subcontract Agreement
despite satisfactory completion by MCS of the gymnasium project almost three years earlier and
adequate payment by PMMA, PNCC has clearly breached the provisions of the Subcontract
Agreement, entitling MCS resort to the courts for protection of its interest.
WHEREFORE, premises considered, the instant petition is hereby DENIED