OCTAVIO A. KALALO, vs. ALFREDO J.

LUZ
(J. Zaldivar; 1970)

RELEVANT PROVISIONS: RA 529

DOCTRINE: Under Republic Act 529, if the obligation was incurred prior to the enactment of the Act and one is required to pay in a particular kind of
coin or currency other than the Philippine currency the same shall be discharged in Philippine currency measured at the prevailing rate of exchange at
the time the obligation was incurred.
NATURE: Appeal from CFI Rizal decision

FACTS:
• Kalalo (an engineer) entered into an agreement w/ Luz (an architect) under their firm names (O. A.
Kalalo & Associates and A.J. Luz & Associates, respectively) where the former was to render engineering
design services to the latter for fees, as stipulated in the agreement Pursuant to the agreement, Kalalo
gave his services for several projects.
• 12/11/1961—Kalalo sent a statement account asking for P116,565.00 engineering fees
o Also stated: P57K = Luz’s previous payment, thus P59,565.00= actual balance
• 05/18/1962—Luz sent resume of fees to appellant, said they only owe P10,861.08
• 06/14/1962—Luz sent a check w/ P10,861.08; Kalalo accepted but refused to accept it as full payment for
services rendered
• 08/10/1962—Kalalo filed a complaint against Luz
o 4 causes of action: (1) $28K and P30,881.25 was due to him for his services; (2) P17,000.00 as
consequential and moral damages; (3) P55Kas moral damages, attorney's fees and expenses of
litigation; (4) P25K as actual damages, and also for attorney's fees and expenses of litigation.
▪ Note: $28K fee is in dollars because it was for the International Research Institute project
• Luz’s Answer: some of Kalalo’s services were not in accordance w/ the agreement and Kalalo’s claims were
not justified by the services actually rendered, and the amount they owe is P10,861.08. Kalalo has no
cause of action and is in estoppel because of the statement of accounts, also Kalalo's claim regarding one
of the projects was premature because Luz had not yet been paid for said project, and Kalalo’s services
were not complete or were performed in violation of the agreement and/or otherwise unsatisfactory.
• TC: authorized that the case be brought to a Commissioner since the only question is on the assessment
of the proper fees and the balance due to Kalalo after deducting the admitted payments made by Luz
• Based on Commissioner’s report, TC rules that the fees due to Kalalo are:
o [($28K +P51,539.91) - sum they already paid] + the legal rate of interest thereon from the filing
of the complaint in the case until fully paid for + P 8K Attorney’s fees
▪ $28K was to be converted into peso on the basis of the rate of exchange of the U.S.
dollar to the Philippine peso at the time of payment of judgment as Certified by the
Central Bank of the Philippines
▪ [note: case says sum they payed is P69,475.46 but if you add up their previous payments
mentioned in the case it’s just P67,861.08… weird, maybe its lawphil]
• Luz appealed to SC.

ISSUES:
(1) WoN Kalalos was in estoppel (because of statement of accounts)
(2) Whether $28K should be paid on the basis of the exchange rate at the time of the payment (of fees in
judgement) or at the time when the research institute project became due and demandable
(3) What is the correct amount Luz must pay Kalalos?

HELD:
(1) NO. Statement of Accounts did not estop Kalalos because Luz did not rely on it as the Commissioner’s
report found. Under Art 1431 CC, in order that estoppel may apply the person, to whom representations
have been made and who claims the estoppel in his favor must have relied or acted on such
representations.
(2) AT THE TIME OF THE PAYMENT. Under Republic Act 529, if the obligation was incurred prior to the
enactment of the Act and one is required to pay in a particular kind of coin or currency other than the
Philippine currency the same shall be discharged in Philippine currency measured at the prevailing rate
of exchange at the time the obligation was incurred. Republic Act 529 does not provide for the rate of
exchange for the payment of obligation incurred after the enactment of said Act. Thus, the rate of
exchange should be that prevailing at the time of payment for such contracts.
(3) LOWER COURT DECISION AFFIRMED (i.e. the amount due is: [($28K +P51,539.91) - sum they already
paid] + the legal rate of interest thereon from the filing of the complaint in the case until fully paid for +
P 8K Attorney’s fees)
PAL v CA
1. November 8, 1967: Amelia Tan, under the name Able Printing Press, filed a complaint for
damages before the Court of First Instance of Manila.
2. July 28, 1972: PAL (presumably Philippine Airlines) filed its appeal with the Court of Appeals.
3. February 3, 1977: The Court of Appeals rendered its decision, ordering PAL to pay the plaintiff
(Able Printing Press) P25,000.00 as damages and P5,000.00 as attorney's fees.
4. May 31, 1977: The judgment became final and executory, and a corresponding entry of
judgment was made in the case.
5. May 18, 1978: PAL received a copy of the First alias writ of execution, issued on the same day,
directing Special Sheriff Jaime K. del Rosario to levy execution in the amount of P25,000.00,
with legal interest from July 20, 1967 (the date when Amelia Tan made an extrajudicial demand
through a letter). Additionally, execution was ordered for the further sum of P5,000.00 awarded
as attorney's fees.
6. On May 23, 1978, the petitioner (PAL) filed an urgent motion to quash the alias writ of
execution, arguing that Deputy Sheriff Emilio Z. Reyes had not yet made a return of the writ,
and that the judgment debt had already been fully satisfied. This was supported by cash
vouchers signed and receipted by Deputy Sheriff Emilio Z. Reyes, who served the writ of
execution.
7. On May 26, 1978, respondent Jaime del Rosario served a notice of garnishment on the
depository bank of PAL, Far East Bank and Trust Company, Rosario Branch, Binondo, Manila.
The garnishment was for the petitioner's deposit in the bank, totaling P64,408.00 as of May 16,
1978.
8. Subsequently, PAL filed a petition for review on certiorari regarding the decision of the Court
of Appeals dismissing the petition for certiorari against the order of the Court of First Instance
(CFI), which issued the alias writ of execution against them. PAL alleged that the payment by
check had already been made to the absconding Sheriff, which they believed satisfied the
judgment.

Issue: whether or not the payments made by check in the sheriff’s name extinguish the judgment
debt?

Ratio Decidendi: No, under the peculiar circumstances of the case, the payment to the absconding
sheriff by check in his name did not operate as a satisfaction of the judgment debt.

Explanation:

1. The payment by check in the sheriff's name was not considered as satisfying the judgment
debt.
2. The initial judgment found that Amelia Tan was wronged by PAL, and she won her case after
ten years of litigation.
3. Despite the court's decision in 1977, almost twenty-two years later in 1990, Tan had not
received any payment.
4. Tan's rights were not enforced due to PAL's failure to issue the checks intended for her in her
name.
5. According to Article 1240 of the Civil Code, payment must be made to the proper person or
their authorized representative to discharge an obligation.

In summary, the payment made to the absconding sheriff by check in his name did not discharge
PAL's obligation to Amelia Tan as per the court judgment. Thus, Tan was entitled to receive payment
directly in her name, and the payment made to the sheriff did not fulfill PAL's obligation.
Part liquidated, part unliquidated" refers to a situation where a portion of a debt or claim has
been determined and settled (liquidated), while another portion remains undetermined or
unresolved (unliquidated).

In legal contexts, this term often arises in the context of damages or debts. For example, in a lawsuit, a
court may determine that certain damages are clear and quantifiable, and therefore they are
liquidated, meaning they have been ascertained and settled. However, there may be other aspects of
the claim that are disputed or not yet resolved, making them unliquidated.

In simpler terms, part of the claim has been agreed upon or resolved, while another part remains
uncertain or subject to further negotiation or determination.

example to illustrate the concept:

Let's say you're in a dispute with a contractor over a home renovation project. You agreed that
they would paint your entire house for $5,000. However, the contractor only completed half of
the work before abandoning the project. In this scenario:

• The $2,500 worth of work completed by the contractor is considered liquidated. Both
parties agree on the value of the work done, and it's clear how much money is owed for
this portion of the project.
• The remaining $2,500, representing the unfinished work, is unliquidated. There may be
disagreements over the quality of work completed, materials used, or the extent of the
remaining work to be done. Until these issues are resolved, the exact amount owed for
this portion of the project remains uncertain or unliquidated.

So, in this example, the situation is "part liquidated, part unliquidated" because only a portion of the
debt (the completed work) has been determined and settled, while the other portion (the unfinished
work) remains unresolved.

"Substantial performance in good faith" is a legal principle that applies in contract law. It refers to a situation where a party
to a contract has fulfilled most of their obligations under the contract, but there may be minor or immaterial deviations or
deficiencies. However, these deviations do not prevent the party from being considered to have substantially performed
their obligations under the contract.

1. Substantial performance: This means that the party has completed a significant portion of their contractual
obligations. While they may not have performed every aspect of the contract perfectly, their performance is
considered adequate and in line with the intentions of the parties when entering into the contract.
2. Good faith: This refers to the party's sincere and honest intentions in carrying out their obligations under the
contract. It implies that the party acted with integrity and did not intentionally breach or undermine the contract.

EXAMPLE: Imagine you hire a contractor to build a deck in your backyard according to specific plans and
specifications outlined in a contract. The contract specifies that the deck should be completed by a certain date and
should meet certain quality standards.

The contractor diligently works on the project and completes the deck by the agreed-upon deadline. However, upon
inspection, you notice that a few minor details do not precisely match the plans. For instance, the stain color used
is slightly different from what was specified, and a railing height is off by a small margin. These discrepancies are
minor and do not affect the overall functionality or safety of the deck.

In this scenario: The contractor has substantially performed their obligations by completing the construction of the deck on
time and meeting most of the specifications outlined in the contract. Despite the minor deviations, the contractor acted in
good faith by making a sincere effort to fulfill the terms of the contract and deliver a functional deck.As a result, you may
still be required to fulfill your contractual obligations, such as paying the contractor the agreed-upon amount for their
services, even though there are minor discrepancies in the work performed. This is because the contractor's performance
can be considered "substantial" in the context of the contract, and they acted in good faith throughout the project.
Reparations Commission v. Universal Deep Sea Fishing (1978)

FACTS: The Reparations Commission (RC) awarded 6 trawl boats to Universal which were delivered two at a
time, each delivery being covered by a Contract of Condition Purchase and Sale providing for identical schedules
of payments. The first installment represented 10% of the total cost was to be paid 24 months after delivery and
the balance of the total cost to be paid in 10 equal installments, which, in the schedule were numbered as "1",
"2", "3", etc., the first of which was due one year after the first installment. To guarantee the faithful compliance
with the obligations under said contract, a performance bond of P53, 643.00, with Universal as principal and
Manila Surety & Fidelity Co., Inc., as surety, was executed in favor of RC.

On August 10, 1962, RC sued Universal and its surety to recover various amounts of money due under the
contracts. Universal claimed that the amounts were not yet due and demandable. The surety company also
contended that the action is premature, but set up a crossclaim against Universal for reimbursement of whatever
amount of money it may have to pay the plaintiff by reason of the complaint, including interest, and for the
collection of accummulated and unpaid premiums on the bonds with interest thereon. With leave of court first
obtained, the surety company filed a third-party complaint against Pablo S. Sarmiento, one of the indemnitors
in the indemnity agreements. Sarmiento denied personal liability claiming that he signed the indemnity
agreements in question in his capacity as acting general manager of Universal.

The trial court rendered judgment against Universal. Hence, this appeal. Universal contended that there is an
obscurity in the terms of the contracts in question which were caused by RC as to the amounts and due dates of
the first installments which should have been first fixed before a creditor can demand its payment from the
debtor.

ISSUE/S:

• WoN the first installments under the 3 contracts of conditional purchase and sale of reparations
goods were already due and demandable when the complaint was filed
o YES.
o The terms of the contracts for the purchase and sale of the reparations vessels are very clear and
leave no doubt as to the intent of the contracting parties. Thus, in the contract concerning the
M/S UNIFISH 1 and M/S UNIFISH 2, the parties expressly agreed that the first installment
representing 10% of the purchase price or P53, 642. 84 shall be paid within 24 months from the
date of complete delivery of the vessels or on May 8, 1961, and the balance to be paid in ten (10)
equal yearly installments. The amount of P56,597.20 due on May 8, 1962, which is also claimed to
be a "first installment," is but the first of the ten (10) equal yearly installments of the balance of
the purchase price (citing Reparations Commission vs. Northern Lines, Inc., et al.).
• WON Universal is liable for payment of premiums on the bonds executed by Manila Surety
o YES. The payment of premiums on the bonds to the surety company had been expressly
undertaken by UNIVERSAL in the indemnity agreements executed by it in favor of the surety
company. The premium is the consideration for furnishing the bonds. The obligation to pay the
same subsists for as long as the liability exists.
o Universal should pay P7,251.42 to Manila Surety.
• WON the P10,000 down payment made by Universal to RC for UNIFISH 1 and 2 can be applied to
the first installment guaranteed by the surety. NO. Manila Surety contends that the down payment of
P10,000 made by Universal can be applied to the first installment for UNIFISH 1 and 2 (an indebtedness
guaranteed by Manila Surety), thus reducing its liability from P53,643.00 to P43,642.00, because Art 1254
stipulates that where the creditor or debtor does not specify to which liability a payment shall be applied,
it shall be deemed to apply to the most onerous debt [in this case, the most immediate, which is the first
installment for UNIFISH 1 and 2]. The Court held that Arts. 1252 to 1254 apply to persons owing several
debts to one creditor, not to sureties whose obligation is both “contingent and singular.”
o The standing obligation of Universal is not just the first installment, but also the 10 equal yearly
installments. Thus, given that both the first installment and the first of the 10 installments have
both accrued, the P10,000 down payment cannot be applied to just one of them.
o The Supreme Court found the terms of the contracts clear and left no doubt as to the intent of
the contracting parties that the first installment due 24 months after delivery was different from
the first of the ten (10) equal yearly installments of the balance of the purchase price (which are
not designated as "first", "second", "third", etc., installments).

The judgment is affirmed, with modification ordering the UNIVERSAL Deep-Sea Fishing Corporation to
pay Manila Surety & Fidelity Co., Inc. P7,251.42 for premiums and documentary stamps on performance
bonds.
Requisites FOR APPLICATION OF PAYMENT. — In order that there will be an application of payment, it is
essential that the following requisites must concur:

first, there must be only one debtor and only one creditor;

The first requisite states that the presence of only one debtor doesn't contradict the extension of payment rules to solidary
obligations. This is because the debtor paying solidary debts may have additional obligations to the same creditor. Similarly,
the requirement of a single creditor doesn't contradict applying payment rules to a scenario where a person owes separate
sums to both a partnership and its managing partner simultaneously.

For example, let's consider a situation where Alex and Beth jointly borrow money from a bank, creating a solidary obligation.
If Alex repays the entire debt to the bank, it doesn't necessarily mean that Beth's obligation is extinguished. Alex might still
have a separate debt to Beth or to other parties.

second, there must be two or more debts of the same kind;

The second requisite for applying payment rules specifies that the debtor must have two or more debts owed to the same
creditor. Additionally, each debt must be of identical or homogeneous type. If a debtor has multiple monetary obligations
to a single creditor and pays an amount insufficient to cover the total owed, payment rules can be applied. However, if some
obligations involve non-monetary items, the rules cannot be applied. An exception exists if the non-monetary obligations
are converted into indemnity obligations due to breach or non-fulfillment at the time of payment designation.

Example: Suppose Alex owes two debts to Beth, one for $500 in cash and another for the delivery of a laptop worth $700.
Alex decides to make a payment of $600 to Beth.

In this scenario, the debts are not of identical or homogeneous type because one involves a monetary sum ($500) while the
other involves the delivery of a non-monetary item (the laptop). Therefore, the rules on application of payment cannot be
applied directly.

However, if at the time of payment designation, the laptop had already been damaged or lost, and Beth agreed to convert
the laptop debt into a monetary debt for indemnification, then the rules on application of payment could be applied. In this
case, Alex's $600 payment could be allocated to satisfy both debts, as they would now be considered identical monetary
obligations.

third, all of the debts must be due;

The general rule regarding the application of payment is that it's possible only when all debts are due. However, there are
two exceptions to this rule:

1. When there is a stipulation in the agreement indicating otherwise.

2. When the party for whose benefit the term or period has been established makes the application of payment.

The second exception should be understood in relation to Article 1196. If it's evident from the obligation's terms or other
circumstances that the term or period benefits the debtor (or the creditor in certain cases) and there are other debts from the
debtor to the same creditor that are already due, the debtor can apply the payment to the obligation not yet due. This
exception is logical because if the term or period benefits the debtor, they have the option to waive it by fulfilling their
obligation in advance.

Suppose Alex has two debts to Beth: one for $500 due in three months and another for $700 due immediately. Additionally,
there's a clause in their agreement stating that any payment made by Alex can be applied at his discretion.

In this scenario: Exception 1: Stipulation to the Contrary: If their agreement states that any payment made by Alex must
first go towards the $500 debt due in three months, regardless of whether other debts are already due, this would override
the general rule.

1. Exception 2: Application by the Party for Whose Benefit the Term or Period Has Been Constituted: If Alex
decides to make a payment before the due date of the $500 debt, despite it not being due yet, he can do so because
the term or period benefits him. Therefore, he can apply the payment to the $700 debt due immediately if he chooses
to waive the benefit of the term.

and fourth, the amount paid by the debtor must not be sufficient to cover the total amount of all the debts.

The requirement that the amount paid by the debtor must not be sufficient to cover the total amount of all the debts is
essential because without it, there would be no need to designate which debt the payment should be applied to. This
requirement ensures clarity and fairness in allocating payments among multiple debts.

Let's illustrate this with an example: Suppose Alex owes Beth two debts: one for $300 and another for $200, totaling
$500. If Alex makes a payment of $500, covering the entire amount owed, there would be no need to designate whichdebt
the payment should be applied to since both debts are satisfied. However, if Alex makes a payment of only $400, leaving
a remaining balance of $100, he needs to specify which debt the $400 payment should be applied to.
 PACULDO VS. REGALADO 345 SCRA 134

FACTS:

On December 27, 1990, petitioner Nereo Paculdo and respondent Bonifacio Regalado entered into a
contract of lease over a parcel of land with a wet market building at Fairview Park, Quezon City. The contract
was for twenty five (25) years. Petitioner also leased other properties from the respondent, ten (10) of which
were located within the Fairview compound, while the other one was along Quirino Highway. Petitioner also
purchased from respondent heavy equipment and vehicles. On account of petitioner’s failure to pay P361,
895.55 in rental for the month of May, 1992, and the monthly rental of P450, 000.00 for the months of June
and July 1992, the respondent sent two demand letters to petitioner demanding for payment of the back rentals,
which would cause the cancellation of the lease contract if payment will not be made within fifteen (15) days.
Without the knowledge of petitioner, on August 3, 1992, respondent mortgaged the land subject of the lease
contract, including the improvements which petitioner introduced into the land amounting to P35, 000,000.00,
to Monte de Piedad Savings a bank, as a security for a loan. On August 12, 1992, and the subsequent dates
thereafter, respondent refused to accept petitioner’s daily rental payments. Subsequently, petitioner filed an
action for injunction and damages seeking to enjoin respondents from disturbing his possession of the property
subject of the lease contract. On the same day, respondent also filed a complaint for ejectment against petitioner.
The lower court rendered a decision in favor of the respondent, which was affirmed in toto by the Court of
Appeals.

ISSUE:

Whether or not the petitioner was truly in arrears in the payment of rentals on the subject property at
the time of the filing of the complaint for ejectment.

RULING:

NO. As found by the lower court there was a letter sent by respondent to petitioner, on November 19,
1991, which states that petitioner’s security deposit for the Quirino lot, be applied as partial payment for his
account under the subject lot as well as to the real estate taxes on the Quirino lot. In an earlier letter, dated
July 15, 1991, respondent informed petitioner that the payment was to be applied not only to petitioner’s
accounts under the subject land and the Quirino lot but also to the heavy equipment. In Article 1252 of the
Civil Code, the right to specify which among his various obligations to the same creditor is to be satisfied first
rest with the debtor. In the case at bar, at the time petitioner made the payment, he made it clear to respondent
that they were to be applied to his rental obligations on the Fairview wet market property. Though he entered
into various contracts and obligations with respondent, all the payments made, about P11,000,000.00 were to
be applied to rental and security deposit on the Fairview wet market property. However, respondent applied a
big portion of the amount paid by petitioner to the satisfaction of an obligation which was not yet due and
demandable- the payment of the eight heavy equipment. According to law, if the debtor did not declare at the
time he made the payment to which of his debts with the creditor the payment is to be applied; the payment
has to be applied first to the debt which is most onerous to the debtor. The lease over the Fairview wet market
is the most onerous to the petitioner in the case at bar. Consequently, the petition is granted.
ARTICLE 1254- The legal application of payment, as outlined in Article 1254, applies when payment cannot be
applied according to previous rules or when the application cannot be inferred from other circumstances. For
instance, if payment for one debt is demanded or if different payment places are designated in a contract and
payment is made in one of those places, the application of payment can be inferred without the need for Article
1254.

In cases where debts vary in burden, the principle is that the most burdensome debt to the debtor is
considered satisfied first. This principle is established through judicial decisions and commentary works, and the
following rules can be derived:

1. Debts incurred at different dates are prioritized based on their age, with older debts being more
burdensome.
Suppose a debtor has two debts—one incurred three years ago and another incurred one year
ago. The older debt, being outstanding for a longer period, is considered more burdensome and
should be satisfied first.

2. If one debt accrues interest while the other does not, even if the non-interest-bearing debt is older,
the interest-bearing debt is deemed more burdensome. Among interest-bearing debts, the one
with a higher interest rate is considered more burdensome.
Let's say a debtor has two debts—one with a 10% interest rate and another without any interest.
Despite the non-interest-bearing debt being older, the one with the interest accrual is considered
more burdensome and should be satisfied first.
3. A secured debt is prioritized over an unsecured one. However, if a bond specifies a lower liability for a
surety compared to the principal debtor, any payment made by the principal debtor should first be applied
to the unsecured portion of the debt.
If a debtor owes money secured by a mortgage on their home and also has a credit card debt
without any collateral, the mortgage debt is prioritized because it's secured by an asset, making
it more burdensome if left unpaid.
4. If the debtor serves as a principal in one obligation and as a guarantor or surety in another, the former
obligation is considered more burdensome.
Consider a scenario where a person has obligations as a principal borrower on a mortgage and
as a guarantor on a business loan. The mortgage debt, where they are directly responsible as the
principal borrower, is deemed more burdensome.
5. In cases where the debtor is a solidary debtor in one obligation and the sole debtor in another, the solidary
obligation is deemed more burdensome to the debtor.
Imagine a situation where an individual is part of a group liable for a loan (solidary debtor) and also has
a personal loan solely under their name. The loan where they share liability with others (solidary
obligation) is considered more burdensome because the debtor is responsible for the entirety of the debt
if others default.
6. Within a solidary obligation, the share corresponding to a solidary debtor is considered most burdensome
to that debtor.
Let's say Alex is part of a group of three friends who co-signed a loan for a business venture. Each friend
is equally responsible for the entire debt. If one of the friends, Sarah, is facing financial difficulties and
can only make a partial payment, her share of the debt within the solidary obligation is considered most
burdensome to her.
7. In cases where one obligation is for indemnity and the other is a penalty, the obligation for indemnity is
considered more burdensome to the debtor.
Imagine Alex signed two contracts—one for purchasing goods with a clause for indemnity in case of
breach, and another for services with a penalty clause for late payment. If Alex breaches the contract for
goods, they would have to pay for the damages incurred (indemnity), which is considered more
burdensome than paying a penalty for late payment in the service contract.
8. If one debt is liquidated while the other remains unliquidated, the liquidated debt is deemed more
burdensome to the debtor.
Suppose Alex has two debts—one from a personal loan that has been fully assessed and quantified, and
another from a legal dispute where the damages are yet to be determined. The debt from the personal
loan, which has a clear and fixed amount (liquidated), is deemed more burdensome to Alex compared to
the uncertain debt from the legal dispute, which remains unliquidated. Therefore, Alex should prioritize
paying off the debt with the clear amount first.
Note: When debts are of the same nature and burden, the principle dictates that payment should be
applied proportionately to all of them. This rule applies when it's challenging to determine which debt is the
most burdensome to the debtor using other guidelines outlined in the article.

Let's say Alex owes two separate debts to different creditors: Debt A: $5,000 credit card debt. Debt B: $5,000
personal loan. Both debts have the same nature (financial obligations) and the same burden (amount owed). In
this scenario, if Alex makes a payment of $1,000, the payment will be applied proportionately to both debts. Each
debt will receive $500 (pro rata or proportionately) from the payment. This ensures fair treatment to both
creditors, as Alex is reducing their debt burden equally for both obligations.
examples: illustrating both dation in payment and payment by cession:

1. Dation in Payment: Example: Alex owes $10,000 to a friend, Sarah, for a loan. Instead of
repaying the debt in cash, Alex offers to transfer ownership of a valuable asset, such as a piece
of artwork or a car, to Sarah as full settlement of the debt. Sarah agrees to accept the asset in
lieu of cash payment, and upon transfer of ownership, the debt is considered settled. This is an
example of dation in payment, where the debtor satisfies the obligation by offering a specific
item of value rather than monetary payment.

Payment by cession: Let's say Alex owes debts to multiple creditors, including Sarah, for various loans
totaling $20,000. Due to his financial struggles, Alex decides to utilize her properties. Cession of
Property: Alex owns a valuable painting worth $15,000 and a vintage guitar worth $5,000. He decides
to cede ownership of these assets to his creditors in payment of his debts.

Allocation of Assets: Alex agrees with his creditors on the allocation of the assets. He assigns the
painting to Sarah to settle her $10,000 debt, and he assigns the guitar to another creditor to settle
their $5,000 debt.
Release of Debt: As per Article 1255, the cession of the painting to Sarah releases Alex from
responsibility for the net proceeds of the painting. Therefore, if Sarah sells the painting for its
appraised value of $15,000, Alex's debt to her is considered fully settled.

Another:

The effects of dation in payment include: Extinguishment of Debt: Dation in payment

extinguishes the obligation to pay to the extent of the value of the thing delivered. This means that
the debtor fulfills their obligation by transferring ownership of an asset to the creditor, either as
agreed upon by both parties or as determined by the value of the asset. Unless the parties expressly
or impliedly agree, or remain silent to consider the thing as equivalent to the obligation, in which case
the obligation is completely extinguished.

Treatment as Pledge: If the property delivered to the creditor is assumed to be a pledge, it involves
less transmission of rights. However, unless it is clearly the intention of the parties to treat the
transaction as a pledge, the property delivered is considered part of the dation in payment process
and not as collateral against the debt.
DBP v CA
Parties Involved: The case involves two primary parties - the Development Bank of the Philippines (DBP)
and Lydia P. Cuba. DBP is a financial institution, while Lydia Cuba is a borrower who acquired loans from
DBP.

Lydia Cuba secured three separate loans from DBP amounting to a total of P335,000. Each loan was
backed by a promissory note, which stipulated that in case of foreclosure of the mortgage securing the
notes, the borrower would be responsible for any deficiency.

Deeds of Assignment: Concurrently with the issuance of the promissory notes, Lydia Cuba executed
"Assignments of Leasehold Rights," through which she transferred her leasehold rights and interest in
a 44-hectare fishpond, along with its improvements, to DBP. These assignments referred to Lydia Cuba
as the borrower and identified the transferred rights as mortgaged properties. The deeds of assignment
included various conditions, such as clauses indicating that failure to adhere to the loan terms would
render all loans due and demandable, and that foreclosure would result in the imposition of attorney's
fees and liquidated damages.

Nature of Assignment: The court determined that the assignment of leasehold rights effectively
constituted a mortgage contract, serving as security for the loans Lydia Cuba obtained from DBP. DBP
argued that the deeds of assignment effectively novated the promissory notes, substituting the
obligation to repay with the assignment of rights over the fishpond. However, the court disagreed,
asserting that the assignments complemented the promissory notes and did not replace them. DBP
contended that condition no. 12 of the deed of assignment constituted pactum commissorium, allowing
the creditor to appropriate the mortgaged property upon the debtor's default. Nevertheless, the court
found that this condition did not entail automatic appropriation but rather authorized DBP to act as an
attorney-in-fact in the event of default. Despite the absence of foreclosure proceedings, DBP seized
Lydia Cuba's leasehold rights to the fishpond, asserting ownership based on the deed of assignment.

whether the assignment of leasehold rights by Lydia Cuba to the Development Bank of the
Philippines (DBP) constituted a novation or dation in payment of her loans.

No, The court ruled that the assignment of leasehold rights did not amount to novation or dation in
payment. Instead, it was determined to be a mortgage contract intended to secure the loans provided
by DBP to Lydia Cuba. The court further reasoned that the assignment of leasehold rights did not
constitute novation because the obligation to pay the loans remained, and the assignment merely
served as security for those loans. Novation, as defined by Article 1292 of the Civil Code, requires the
substitution of an existing obligation with a new one. However, in this case, the court found that both
the promissory notes and the assignment of leasehold rights could coexist and were executed
simultaneously. The assignment explicitly referenced the terms and conditions of the promissory notes,
indicating their continued relevance and coexistence. Furthermore, the court dismissed the argument
that the assignment constituted dation in payment under Article 1245 of the Civil Code. Dation
in payment involves the transfer of property to the creditor as satisfaction of a debt. However, the court
determined that the assignment, being a mortgage, did not extinguish Lydia Cuba's debt but rather
secured it with the collateral of her leasehold rights. Therefore, it did not meet the criteria for dation in
payment.
It is not also Cessation, as described in Article 1255 of the Civil Code, requires the existence of two or
more creditors to whom the debtor owes obligations, and the debtor offers all of his property to one
of them to extinguish the debts. However, in this case, there was only one creditor, which was the
Development Bank of the Philippines (DBP), to whom Lydia Cuba owed the loans. Therefore, the
conditions for cessation as outlined in the Civil Code were not met. Since there was only one creditor,
cessation could not be invoked as a legal basis for DBP's actions in appropriating Lydia Cuba's leasehold
rights to the fishpond.

Based on these considerations, the court ruled that DBP's actions in appropriating Lydia Cuba's leasehold rights without
conducting foreclosure proceedings were unlawful. Let this case be REMANDED to the trial court for the reception of the
income statement of DBP, as well as the statement of the account of Lydia P. Cuba, and for the determination of each party's
financial obligation to one another
Tender of Payment and Consignation

Tender of payment is when a debtor shows willingness to fulfill their obligation to the creditor immediately.
Conversely, consignation involves depositing the object of the obligation with a court according to legal rules,
typically after the creditor refuses or is unable to accept the tender of payment.

Aspect Tender of Payment Consignation

Relationship Antecedent to consignation Follows tender of payment
Nature Preparatory act Act of depositing object of obligation in court
Manifestation of willingness to comply Deposit after creditor's refusal or inability to accept
Purpose immediately payment
Legal Process
Involved Not involving court Involves competent court and legal rules
Principal Act Does not produce effects of payment Produces effects of payment of the obligation

CONSIGNATION

Special Requisites of
Consignation Description
Before consignation can produce the effect of payment, there must be a recognized
debt owed by the debtor to the creditor. Thus, if there is no debt due, consignation
may not be necessary. For instance, if a contract allows one party to cancel it upon
1. Existence of Debt payment of a certain sum, and no such sum is yet due, consignation may not be
Due required.
Consignation must occur due to the creditor's unjust refusal to accept payment or
other legal grounds specified by law. In order for consignation to be effective, there
must have been a tender of payment made by the debtor to the creditor. The tender
must have been made prior to the consignation, unconditional in nature, and the
creditor must have refused to accept the payment without just cause. Tender of
payment is deemed valid only if it is unconditional. For example, if a debtor offers a
2. Refusal of Payment check for an amount less than the debt, or if the payment is conditional upon the
or Legal Grounds for creditor fulfilling another obligation, it may not be considered a valid tender of
Consignation payment.
Previous notice of consignation must be given to persons interested in the fulfillment
of the obligation. This is separate and distinct from tender of payment, which is a
private act manifested only to the creditor. Notice of consignation, however, is a
formal act manifested not only to the creditor but also to other persons involved in
the fulfillment of the obligation. Although separate, these procedures can be
combined in a single act, primarily including tender of payment and secondarily notice
3. Previous Notice of of consignation, unless the creditor accepts the payment. Even in such a case, notice
Consignation must be given to other interested parties such as sureties, guarantors, or co-debtors.
For consignation to be effective, the thing or amount due must be placed at the
disposal of judicial authority. This is usually done by depositing the thing or amount
4. Placement of Debt at with the Clerk of Court. The filing of a complaint, often termed as an action for
Disposal of Judicial consignation, typically accompanies this requirement, although the action is
Authority essentially for specific performance of the obligation or cancellation thereof.
After consignation, persons interested in fulfilling the obligation must be notified
thereof. This notification is separate from the one made prior to consignation. It
enables the creditor to withdraw the goods or money deposited and prevents unjust
consequences due to lack of knowledge of the consignation. If the consignation is
accompanied by a corresponding complaint for specific performance or cancellation
5. Notification after of the obligation, the requirement is automatically fulfilled, provided copies are
Consignation furnished to other interested parties
example illustrating the application of Article 1264 of the Civil Code:PARTIAL IMPOSSIBILITY

Let's say that Alice agrees to sell her vintage car to Bob for a specified amount of money. They enter
into a written contract, and Bob pays Alice half of the agreed purchase price as a down payment.
However, before the final transaction takes place, there is a fire in Alice's garage where the vintage car
is stored. The fire damages the car, but it's not completely destroyed; however, the damage is
significant.

Now, Bob might argue that the partial loss of the vintage car is so substantial that it would be unfair
to proceed with the sale. He might claim that the car's value has significantly diminished due to the
damage, and he no longer wants to go through with the purchase.

In this situation, Article 1264 comes into play. The courts would have to determine whether the partial
loss of the vintage car is so significant that it effectively renders the obligation to sell it null and void.
They would evaluate factors such as the extent of the damage, the original value of the car, the cost of
repairs, and any other relevant circumstances.

If the court decides that the partial loss is indeed significant enough to extinguish the obligation, then
Alice would be relieved of her duty to sell the vintage car to Bob, and Bob would be entitled to
receive back his down payment. However, if the court determines that the damage is not substantial
enough to warrant the cancellation of the contract, then Alice would still be obligated to sell the car,
and Bob would need to proceed with the purchase as originally agreed upon.

Difficulty Impossibility
Manifest disequilibrium in the prestations, such that
one party would be placed at a disadvantage by the
unforeseen event. See discussion on physical and legal impossibility.
The event or change in circumstance could not have
been foreseen at the time of execution of the The event or change in circumstance could not have
contract. been foreseen at the time of execution of the contract.
It makes the performance extremely difficult but not
impossible. The event makes the performance impossible.
The event is not imputable to either party. The event is not imputable to either party.
The contract is for a future prestation. The contract is for a future prestation.
Example: Example:
Alice agrees to deliver a shipment of goods to Bob's Alice agrees to deliver a shipment of goods to Bob's
store within one week. However, due to unexpected store within one week. However, a sudden government
weather conditions causing road closures and delays, ban on the transportation of the specific goods renders
Alice faces difficulty in delivering the goods on time. it impossible for Alice to fulfill the delivery obligation.
While the delay presents a challenge for Alice, it is still
feasible for her to arrange alternate transportation Alice cannot deliver the goods through any means due
methods to eventually deliver the goods. to the legal prohibition imposed by the government.
The unforeseen weather conditions and resulting The government's decision to ban the transportation of
delays were beyond the control of both Alice and the goods was unforeseen and beyond the control of
Bob. both Alice and Bob.
Alice is released from the obligation to deliver the
Despite the setback, Alice remains obligated to deliver goods due to the impossibility caused by the
the goods, albeit with difficulty. government's intervention.
Conclusion: Conclusion:
While the unforeseen event presents a challenge, it
does not render the performance of the obligation The unforeseen legal prohibition makes it impossible
impossible, and therefore, Alice remains bound by the for Alice to fulfill her obligation, leading to her release
contract. from the contract.
Occena v. CA, 73SCRA 637 (1976)

The case of Jesus and Efigenia C. Occena v. Hon. Ramon V. Jabson, the Court of Appeals, and Tropical Homes,
Inc. revolves around a subdivision contract concerning a 55,330 square meter parcel of land in Davao City.
Tropical Homes, Inc. entered into this contract with the petitioners, the landowners, to develop the land. However,
in 1975, Tropical Homes, Inc. filed a complaint seeking modification of the contract terms. The company argued
that due to unforeseen circumstances, such as the increase in oil and commodity prices globally, the cost of
development had risen significantly beyond what was initially anticipated. Tropical Homes, Inc. contended that
continuing to perform under the contract would result in unjust enrichment of the petitioners at its expense.

The legal basis for Tropical Homes, Inc.'s complaint rested on Article 1267 of the Civil Code, which allows for the
release of an obligor when the service becomes excessively difficult beyond the contemplation of the parties.
Seeking intervention from the court, Tropical Homes, Inc. requested modification of the contract terms to adjust
the sharing of proceeds from the sale of subdivided lots.

In response, the petitioners moved to dismiss the complaint, arguing that it lacked a sufficient cause of action.
Despite their efforts, the lower court denied the motion, prompting the petitioners to elevate the matter to the
Court of Appeals via certiorari. However, the Court of Appeals upheld Tropical Homes, Inc.'s complaint, citing
Article 1267 of the Civil Code as justification for releasing the obligor from performance.

Dissatisfied with the Court of Appeals' decision, the petitioners appealed to the Supreme Court by filing a petition
for certiorari.

Major Issue: The major issue in the case of Jesus v. Occena and Efigenia C. Occena revolves around whether the
complaint filed by Tropical Homes, Inc. (the respondent) for modification of the terms and conditions of its
subdivision contract with the petitioners is valid and whether the courts have the authority to modify the contract.

Court's Ruling: The Court reversed the decision of the Court of Appeals and granted the petition for certiorari,
thereby dismissing the complaint of Tropical Homes, Inc. The Court held that the complaint lacked a sufficient
cause of action, and the courts did not have the authority to modify the terms and conditions of the subdivision
contract between the parties.

Reasoning:

1. Failure to State Cause of Action:

• The Court held that Tropical Homes, Inc.'s complaint for modification of the contract lacked a
sufficient cause of action. The increase in prices of oil and commodities cited by Tropical Homes,
Inc. did not constitute a valid reason for modifying the contract.
• The complaint sought not release from the subdivision contract but rather requested the court to
modify the terms and conditions of the contract by fixing the proper shares of the parties.
However, the cited article of the Civil Code did not grant the courts the authority to remake,
modify, or revise the contract. Therefore, the complaint had no basis in law.
2. Scope of Court's Authority:
• The Court emphasized that while the Civil Code provides for the release of an obligor when the
service becomes too difficult, it does not authorize the courts to modify or revise the terms of the
contract between the parties.
• Respondent's complaint sought relief that was beyond the authority of the courts, as it aimed to
modify the contractual agreement between the parties, which was not within the court's power.
3. Procedural Note - Certiorari:
• The Court justified the use of certiorari in this case, even though an appeal would typically be the
appropriate remedy for an erroneous order denying a motion to dismiss. It stated that certiorari
would be appropriate when appeal would not provide a speedy and adequate remedy.
• Since the remedy of appeal would not promptly relieve petitioners from the injurious effects of
the erroneous order maintaining respondent's baseless action, the Court granted certiorari to
provide a speedy and adequate remedy.

In conclusion, the Court ruled that the complaint lacked a sufficient cause of action, and the courts did not have
the authority to modify the subdivision contract between the parties. Therefore, the petition was granted, and
the respondent's complaint was dismissed.
Naga Telephone Co. v. CA, 230 SCRA 351 (1994) 17 Naga Telephone Co., Inc. is objecting primarily to
the Court of Appeals' use of Article 1267 in favor of Camarines Sur II Electric Cooperative, Inc. They argue that
the complaint should have been dismissed due to a lack of cause of action.

The case involves a dispute between Naga Telephone Co., Inc. (NATELCO) and Camarines Sur II Electric
Cooperative, Inc. (CASURECO II) regarding a contract signed in 1977. The contract allowed NATELCO to use
CASURECO II's electric light posts in Naga City for its telephone services. In return, NATELCO agreed to install
ten telephone connections for CASURECO II's use in various locations. The contract stipulated that it would
continue as long as NATELCO required the electric light posts. Over time, CASURECO II became dissatisfied with
the terms of the contract, claiming it was too one-sided in favor of NATELCO. They filed a lawsuit seeking to
reform the contract and claim damages. CASURECO II argued that NATELCO's use of the posts had become
heavier due to increased subscribers, leading to damages to the posts during typhoons. They also claimed that
NATELCO was using posts outside Naga City without a contract and had provided poor service for the telephone
units.

NATELCO countered, arguing that the contract was fair and that CASURECO II had benefited from free telephone
connections. They disputed CASURECO II's claims about damages to the posts and asserted that any issues were
due to other factors like overloaded trucks. NATELCO also claimed that CASURECO II had requested telephone
connections outside Naga City, leading to the use of posts in those areas.

The trial court ruled in favor of CASURECO II, ordering the reformation of the contract and setting compensation
for the use of posts both in Naga City and outside areas. NATELCO appealed the decision, arguing errors in the
court's application of Article 1267 of the New Civil Code, its interpretation of the contract's prescription period,
and its determination of a potestative condition in the contract. . In the decision dated May 28, 1992, respondent
court affirmed the decision of the trial court,5 but based on different grounds to wit: (1) that Article 1267 of the
New Civil Code is applicable and (2) that the contract was subject to a potestative condition which rendered said
condition void.

Whether or not Article 1267 of the New Civil Code should be applied to rectify contracts that fail to
express the true intention of the parties

Yes, The court invoked Article 1267 to release the parties from their correlative obligations under the contract,
emphasizing the equitable principle that contracts should reflect the true intentions of the parties and should
not result in unjust enrichment for one party at the expense of the other. It was noted that the disappearance of
the basis of a contract gives rise to a right to relief in favor of the prejudiced party, aligning with the principle of
equity and good faith. Furthermore, the court addressed the practical consequences of releasing the parties from
the contract, ensuring that basic and essential services provided by both parties to the public would not be
disrupted. It ordered the payment of reasonable monthly rentals for the use of the plaintiff's resources by the
defendant and vice versa, until the parties could renegotiate a new agreement. This decision aimed to prevent
unjust enrichment by either party and to maintain a fair balance in their contractual relationship.

The court's decision also clarified the application of Article 1267, stating that it does not require the contract
to be solely for future services with future unusual changes. Rather, it encompasses situations where the contract
becomes inequitable due to changed circumstances over time. Also, the court invoked the principle of rebus
sic stantibus to justify releasing the parties from their obligations under the contract. According to this
doctrine, contracts are made based on prevailing conditions, and if these conditions change significantly, the
contract may cease to be valid. The disappearance of the basis of a contract can give rise to relief in favor of the
prejudiced party, taking into account practical needs, equity, and good faith. Specifically, the court noted the
expansion of the appellant's business and the increase in the volume of its subscribers, which had led to a
disproportionate burden on the respondent. This change in circumstances had resulted in the contract becoming
one-sided in favor of the appellant, to the detriment of the respondent.

(don’t read: At the time of entering into the contract, NATELCO had limited capabilities, and it was not expected
to expand due to ongoing legal issues. This limited capability was a significant factor in the agreement, as it
influenced the terms regarding the use of CASURECO II's posts in Naga City. CASURECO II expected that
NATELCO would only utilize its posts within Naga City. Initially, the telephone wires attached to CASURECO II's
electric posts were light, and only a few telephone lines were connected. over time, these conditions changed
significantly, leading to the contract becoming inequitable and disadvantageous to CASURECO II. )
WHEREFORE, the petition is hereby DENIED.
PNNC v. CA, G.R. No. 116896, May 5, 1997

Also, the Art. 1267 cant be avail in this case. 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."

WHEREFORE, the instant petition is DENIED

So. V. Food Fest Land, Inc., v. G.R. No. 183628, April 7, 2010 SCRA 541

Thus, Food Fest is ORDERED to pay So liquidated damages in the amount equivalent to 25% of the total sum due
and demandable. Further, So is ORDERED to pay attorney’s fees in the amount equivalent to 25% of the total sum
due and demandable. In all other respects, the decision is AFFIRMED.
The case involves a contractual dispute between Spouses Jonas Ramos and Myrna Ramos and Susana S. Sarao
concerning their conjugal house and lot. On February 21, 1991, the Ramos spouses entered into a contract
termed as a "DEED OF SALE UNDER PACTO DE RETRO" with Sarao, which allowed them the option to
repurchase the property within six months for a specified amount plus interest. However, when Myrna Ramos
attempted to redeem the property by offering a sum of money on July 30, 1991, Sarao refused to accept it,
leading to a legal battle. Subsequently, Myrna Ramos filed a complaint for redemption of the property and
sought moral damages against Sarao. The trial court dismissed the complaint and granted Sarao's request to
consolidate ownership. Dissatisfied, Myrna Ramos appealed to the Court of Appeals (CA), which upheld the trial
court's decision.

Myrna Ramos contended that she had tendered payment and consigned the amount due, while Susana S.
Sarao, the respondent, challenged the validity of the tender and consignation. The trial court and the Court of
Appeals (CA) held that there was no valid consignation, primarily because Myrna Ramos failed to offer the
correct amount and provide ample notice of consignation to Sarao.

whether Myrna Ramos's act of tendering payment and consigning the amount due was valid and
sufficient to release her from the obligation regarding the property in question

Yes, in contrast, the Supreme Court (SC) reviewed the evidence and found that Myrna Ramos had
indeed tendered a sufficient amount and validly consigned the payment. Despite Sarao's refusal to
accept the tendered amount, the SC held that Myrna Ramos's act of offering payment and
announcing the consignation in a letter to Sarao constituted valid consignation. The SC emphasized
that the notice requirement for consignation was met through Myrna Ramos's clear statement in her
letter to Sarao.

Myrna Ramos, the petitioner, was obliged to pay a principal loan amount of P1,310,430 plus 4.5%
monthly interest compounded for six months. She expressed her intention to pay during the fifth
month, totaling P1,633,034.19 based on Sarao's own computation. However, Sarao demanded an
exorbitant amount of P2,911,579.22 to settle the loan, which included expenses not covered by the
agreement, such as gasoline, taxes, attorney's fees, and other alleged loans. When Sarao unjustly
refused Myrna Ramos's tender of payment amounting to P1,633,034.20, Myrna Ramos filed suit and
consigned the correct amount to release herself from the obligation

Ultimately, the SC's ruling on the validity of consignation was crucial in determining the outcome of
the case and resolving the dispute over the conjugal property. It established whether Myrna Ramos
had effectively discharged her obligation and whether Sarao was entitled to ownership of the
property.
DEGUZMAN v CA

FACTS:

On February 17, 1971, Pilar De Guzman and Sps. Gestuvo (petitioners) executed a contract to sell with Leonida
Singh covering two parcels of land in Pasay. It was stipulated that Singh should pay the P133,640-balance on
or before February 17, 1975.

Two days before Feb. 1975, Singh asked the petitioners to provide the statement of account of the balance due,
copies of certificates of land titles, and power of attorney executed by Rolando Gestuvo in favor of Pilar De
Guzman.

However, petitioners refused. Thus, Singh filed a complaint for specific performance with damages against
petitioners in CFI Rizal. Singh alleged that, by refusing to furnish her with copies of the documents requested,
petitioners deliberately intended not to comply with their obligations under the contract to sell, as a result of which
they committed a breach of contract. And they had also acted unfairly and in manifest bad faith for which they
should be held liable for damages.

Petitioners claimed that the complaint failed to state a cause of action; that the balance due was already
predetermined in the contract; that they have no obligation to furnish Singh with copies of the documents
requested; and that Singh’s failure to pay the balance on the date specified had caused the contract to expire
and become ineffective without necessity of notice or of any judicial declaration to that effect.

The parties entered into a compromise agreement approved by the court, wherein Singh agreed to pay P240,000
by December 18, 1977, or P250,000 by January 27, 1978, as complete and final payment for the contract to sell.
De Guzman undertook to execute legal documents for land transfer upon payment receipt. De Guzman
temporarily refrained from enforcing property rights until January 27. Failure to pay resulted in automatic
rescission of the contract and immediate possession enforcement. Petitioners sought writ of execution after
Singh's failure to pay, but the court denied it and ordered document transfer to Singh. Singh deposited P250,000,
prompting petitioners' appeal dismissal motion, later denied by the trial court. A petition for certiorari was filed
with the Court of Appeals, which upheld the trial court's decision..

ISSUE/S:

• WoN Singh had substantially complied with the terms and conditions of the compromise agreement
o YES.
o Her failure to deliver to the petitioners the full amount on January 27, 1978 was not her fault. The
blame lies with the petitioners. The record shows that Singh went to the sala of Judge Bautista
on the appointed day to make payment, as agreed upon in their compromise agreement. But, the
petitioners were not there to receive it. Only the petitioners' counsel appeared later, but, he
informed Singh that he had no authority to receive and accept payment. Instead, he invited Singh
and her companions to the house of the petitioners to effect payment. But, petitioners were not
there either. They were informed that de Guzman would arrive late in the afternoon, possibly at
around 4:00 o'clock. Singh was assured, however, that she would be informed as soon as the
petitioners arrived. Singh, in her eagerness to settle her obligation, consented and waited for the
call which did not come and unwittingly let the period lapse.
o The next day, January 28, 1978, Singh went to the office of the Clerk of CFI of Rizal, Pasay City
Branch, to deposit the balance. But, it being a Saturday, the cashier was not there to receive it.
o So, on the next working day, Monday, January 30, 1978, Singh deposited P30,000.00 with the
cashier of the Office of the Clerk of the Court of First Instance of Rizal, Pasay City Branch, to
complete the payment of the purchase price of P250,000.00.
o Since the deposit of the balance of the purchase price was made in good faith and that the failure
of Singh to deposit the purchase price on the date specified was due to the petitioners who also
make no claim that they had sustained damages because of the two days delay, there was
substantial compliance with the terms and conditions of the compromise agreement.

WHEREFORE, the petition should be, as it is hereby DISMISSED. The temporary restraining order heretofore
issued is LIFTED and SET ASIDE. With costs against the petitioners.
Meat Packing Corp. v. Sandiganbayan (2001)

FACTS:

Meat Packing Corporation of the Philippines (MPCP), wholly-owned by GSIS, leased its land and plant to
Philippine Integrated Meat Corporation (PIMECO) in 1975. The agreement allowed rescission if PIMECO failed to
pay three years' worth of rent. PCGG sequestered PIMECO's assets, including the lease-purchase agreement, due
to its connection with a Marcos crony. In 1986, MPCP rescinded the agreement for non-payment of rent,
prompting GSIS to request PCGG to exclude the plant from sequestered assets, but PCGG denied. MPCP sought
the plant's turnover, claiming rescission had occurred. In this regard, PCGG passed a resolution:

a. PCGG ordered the transfer of subject property, consisting of the meat packing complex (including the
MPCP property) to GSIS under the condition that the PCGG management team might continue its
operations for the purpose of completing the outstanding orders up to December 1988

- However, the approval of Sandiganbayan was not obtained. In 1990, PIMECO filed a petition for declaratory
relief with the Sandiganbayan against MPCP and PCGG, alleging that from 1981 to 1985, PIMECO has been
regularly paying the annual rentals and that prior to its sequestration in 1986, PIMECO was able to pay MPCP.
However, after its sequestration, the PCGG Management Team that took over the plant became erratic and
irregular in its payments of the annual rentals to MPCP, thus presenting the danger that PIMECO may be
declared in default in the payment of rentals equivalent to three (3) annual installments and causing the
cancellation of the lease-purchase agreement. Hence, PIMECO prayed for a declaration that it is no longer
bound by the provisions of paragraph 5 of the agreement.

- In the meantime, PCGG tendered to MPCP two checks in the amounts of P3,000,000.00 and P2,000,000.00,
or a total of P5,000,000.00, representing partial payment of accrued rentals on the meat packing plant, which
MPCP refused to accept on the theory that the lease-purchase agreement had been rescinded. Thus, the PCGG
filed an Urgent Motion in the RP v. Subido praying that the Sandiganbayan order MPCP to accept the tendered
amount of P5,000,000.00.

- The Sandiganbayan ruled that the consignation was valid and ordered MPCP to accept the payment and issue
the corresponding receipt. In denying MPCP’s MR, the Sandiganbayan held that when the PCGG sequestered
the assets and records of PIMECO, including the lease-purchase agreement over MPCP’s meat packing plant,
it assumed the duty to preserve and conserve those assets and documents while they remained in its possession
and control. To rule otherwise would be unfair to PIMECO.

ISSUES:

• WoN the consignation was validly made

o YES. There was prior tender by PCGG of P5,000,000.00 for payment of the rentals in arrears.
MPCP’s refusal to accept the same, on the ground merely that its lease- purchase agreement
with PIMECO had been rescinded, was unjustified. As found by the Sandiganbayan, from January
29, 1986 to January 30, 1990, PIMECO paid, and GSIS/MPCP received, several amounts due
under the lease-purchase agreement, such as annual amortizations or rentals, advances,
insurance, and taxes, in total sum of P15,921,205.83.
• WON PCGG is in estoppel because it has already admitted in its resolution that the lease-purchase
agreement between MPCP and PIMECO has been rescinded
o NO. Surely, the acceptance by MPCP and GSIS of such payments for rentals and amortizations
negates any rescission of the lease-purchase agreement.
o A closer perusal of the resolutions readily shows that the turn-over was explicitly made dependent
on certain conditions precedent, among which was the approval by the Sandiganbayan and the
execution of a Memorandum of Agreement between PCGG and MPCP. A Memorandum of
Agreement was in fact executed on April 28, 1989, although the same suffers from formal and
substantial infirmities. However, no approval was sought from the Sandiganbayan. On the
contrary, the Sandiganbayan, in its Resolution declaring the turn-over null and void, refused to
honor the PCGG resolutions.
o Under the terms of the lease-purchase agreement, the amount of arrears in rentals or
amortizations must be equivalent to the cumulative sum of three annual installments, in order to
warrant the rescission of the contract. Therefore, it must be shown that PIMECO failed to pay the
aggregate amount of at least P10,038,809.10 before the lease-purchase agreement can be
deemed automatically cancelled.

WHEREFORE, in view of the foregoing, the instant petition is DISMISSED for lack of merit.
TEDDY G. PABUGAIS vs. DAVE P. SAHIJWANI

G.R. No. 156846 February 23, 2004

YNARES-SANTIAGO, J.:

FACTS: Pabugais, in consideration of P15,487,500.00 agreed to sell to respondent Dave P. Sahijwani a lot.
Respondent paid P600,000.00 as option/reservation fee and the balance of P14,887,500.00 to be paid
within 60 days from the execution of the contract. Failure on the part of respondent to pay the balance
entitles petitioner to forfeit the option/reservation fee; while non-delivery by the latter of the necessary
documents obliges him to return to respondent the said option/reservation fee with interest at 18% per
annum.

Petitioner failed to deliver the required documents and returned respondent’s P600,000.00
option/reservation fee by way of Far East Bank & Trust Company Check No. 25AO54252P, which was,
however, dishonored.

Petitioner claimed that he twice tendered to respondent through his counsel but said counsel refused to
accept the same because the face does not completely cover the option fee and interests thus petitioner
wrote a letter to respondent saying that he is consigning the amount tendered with the Regional Trial Court
of Makati City.

ISSUE: Was there a valid consignation?

HELD: In order that consignation may be effective, the debtor must show that: (1) there was a debt due;
(2) the creditor to whom tender of payment was made refused to accept it, or because he was absent or
incapacitated, or because several persons claimed to be entitled to receive the amount due or because the
title to the obligation has been lost; (3) previous notice of the consignation had been given to the person
interested in the performance of the obligation; (4) the amount due was placed at the disposal of the court;
and (5) after the consignation had been made the person interested was notified thereof. Failure in any of
these requirements is enough ground to render a consignation ineffective.
While it is true that in general, a manager’s check is not legal tender, the creditor has the option of refusing
or accepting it. Payment in check by the debtor may be acceptable as valid, if no prompt objection to said
payment is made. Consequently, petitioner’s tender of payment in the form of manager’s check is valid.

Anent the sufficiency of the amount tendered, it appears that only the interest of 18% per annum on the
P600,000.00 option/reservation fee stated in the default clause of the "Agreement And Undertaking" was
agreed upon by the parties. The manager’s check of P672,900.00 (representing the P600,000.00
option/reservation fee plus 18% interest per annum) which was tendered but refused by respondent, and
thereafter consigned with the court, was enough to satisfy the obligation.

There being a valid tender of payment in an amount sufficient to extinguish the obligation, the consignation
is valid.