ATENEO DE DAVAO UNIVERSITY

COLLEGE OF LAW

LAW ON OBLIGATIONS AND CONTRACTS

SP – P

CASE DIGESTS
SECOND EXAM COVERAGE

SUBMITTED TO:

ATTY. BJ BONN D. PUSTA, REB

SUBMITTED BY:

MEDINA, TIARA
PANTUJAN, BLANCHE
PONCARDAS, MICHAELA
GROUP 6
Articles 1256-1261: Tender of Payment and Consignation

Pabugais v. Sahijwani
G.R. No. 156846, 23 February 2004

CHARACTERS:

1. Teddy G. Pabugais- seller of a lot located at Jacaranda Street, North Forbes Park,
Makati, Metro Manila
2. Dave P. Sahijwani- buyer of the said lot

FACTS:

Pursuant to an Agreement and Undertaking, petitioner Teddy G. Pabugais agreed to sell

to respondent Dave P. Sahijwani a lot. Sahijwani paid Pabugais an option/reservation
fee and the balance to be paid within 60 days from the execution of the contract. The
parties further agreed that failure on the part of Sahijwani to pay the balance of the
purchase price entitles Pabugais to forfeit the option/reservation fee; while non-delivery
by the latter of the necessary documents obliges him to return to Sahijwani the said
option/reservation fee with interest at 18% per annum.

Pabugais failed to deliver the required documents. In compliance with their agreement,
he returned to Sahijwani the latter’s option/reservation fee by way of manager’s check
which was, however, dishonored.

Pabugais claimed that he twice tendered to Sahijwani, through his counsel, in the form of
Far East Bank & Trust Company Managers Check but said counsel refused to accept the
same. He wrote a letter to Sahijwani saying that he is consigning the amount tendered,
thus Pabugais filed a complaint for consignation.

ISSUE:
1. WHETHER OR NOT there was a valid consignation.
2. WHETHER OR NOT Pabugais can withdraw the amount consigned as a matter of
right.

RULING:
1. Yes, there was a valid consignation.

In order that consignation may be effective, the debtor must show that:
(1) there was a debt due;
(2) the consignation of the obligation had been made because 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.

As testified by the counsel for Sahjiwani, the reasons why his client did not accept
Pabugais’ tender of payment were (1) the check mentioned in the August 5, 1994
letter of Pabugais’ manifesting that he is settling the obligation was not attached to
the said letter; and (2) the amount tendered was insufficient to cover the
obligation. It is obvious that the reason for Sahijwani’s non-acceptance of the
tender of payment was the alleged insufficiency thereof and not because the said
check was not tendered to Sahijwani, or because it was in the form of managers
check. 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.

2. No. The amount consigned with the trial court can no longer be withdrawn by
Pabugais because Sahijwani’s prayer in his answer that the amount consigned be
awarded to him is equivalent to an acceptance of the consignation, which has the
effect of extinguishing petitioner’s obligation. Pabugais failed to manifest his
intention to comply with the Agreement and Undertaking by delivering the
necessary documents and the lot subject of the sale to respondent in exchange
for the amount deposited. Withdrawal of the money consigned would enrich
petitioner and unjustly prejudice Sahijwani.
Articles 1256-1261: Tender of Payment and Consignation

Spouses Benos vs. Spouses. Lawilao

G.R. No. 172259 December 5, 2006

CHARACTERS:

1. Spouses Jaime and Marina Benos- seller of the lot and building for 300, 000 pesos
under a Pacto de Retro Sale.
2. Spouses Gregorio and Janice Lawilao- buyer of the said lot and building.

FACTS:

On February 11, 1999, petitioner-spouses Jaime and Marina Benos and respondent-
spouses Gregorio and Janice Gail Lawilao executed a Pacto de Retro Sale where the
Benos spouses sold their lot and the building erected thereon for P300,000.00, one half
of which was to be paid in cash to the Benos spouses and the other half to be paid to the
bank to pay off the loan of the Benos spouses which was secured by the same lot and
building.

Under the contract, the Benos spouses could redeem the property within 18 months from
date of execution by returning the contract price, otherwise, the sale would become
irrevocable without necessity of a final deed to consolidate ownership over the property
in the name of the Lawilao spouses.

The Lawilao spouses immediately took possession of the property and leased out the
building thereon. However, instead of paying the loan to the bank, Janice Lawilao
restructured it twice. Eventually, the loan became due and demandable.

Later, a son of the Benos spouses paid the bank the principal and interest. On the same
day, the Lawilao spouses also went to the bank and offered to pay the loan, but the bank
refused to accept the payment. The Lawilao spouses then filed with the Municipal Circuit
Trial Court a petition for consignation against the bank and simultaneously deposited the
amount.

The Benos spouses argue that consolidation is not proper because the Lawilao spouses
violated the terms of the contract by not paying the bank loan; that having breached the
terms of the contract, the Lawilao spouses cannot insist on the performance thereof by
the Benos spouses, while The Lawilao spouses also claim that they complied with their
obligation when they offered to pay the loan to the bank and filed a petition for
consignation; and that because of the failure of the Benos spouses to redeem the property,
the title and ownership thereof immediately vested in them.
ISSUE:

Was there no full and complete payment of the contract price, which gives Spouses Benos
the right to rescind the contract?

RULING:

There was no full and complete payment. Article 1257 of the New Civil Code provides
that in order that the consignation of the thing due may release the obligor, it must first be
announced to the persons interested in the fulfillment of the obligation.

In this case, the evidence shows that the Lawilao spouses did not make a valid tender of
payment and consignation of the balance of the contract price. Although they had
repeatedly alleged in their pleadings that the amount of P159,000.00 was still with the
trial court which the Benos spouses could withdraw anytime, they never made any step
to withdraw the amount and thereafter consign it. Compliance with the requirements of
tender and consignation to have the effect of payment are mandatory. In the instant case,
records show that the Lawilao spouses filed the petition for consignation against the bank
without notifying the Benos spouses. The petition was dismissed for lack of cause of
action against the bank. Hence, the Lawilao spouses failed to prove their offer to pay the
balance of the purchase price and consignation. In fact, even before the filing of the
consignation case, the Lawilao spouses never notified the Benos spouses of their offer
to pay. Thus, as far as the Benos are concerned, there was no full and complete payment
of the contract price, which gives them the right to rescind the contract pursuant to Articles
1191 in relation to Article 1592 of the Civil Code.
Spouses Oscar And Thelma Cacayorin Vs. Armed Forces And Police Mutual
Benefit Association, Inc.
G.R. No. 171298 April 15, 2013

CHARACTERS:

1. Spouses Oscar and Thelma Cacayorin- a member of respondent Armed Forces

and Police Mutual Benefit Association, Inc. (AFPMBAI); buyer of a Kalikasan
Mutual Home property; and borrower in a Loan and Mortgage Agreement with
Rural Bank.
2. Armed Forces and Police Mutual Benefit Association, Inc. (AFPMBAI)- a mutual
benefit association engaged in the business of developing low-cost housing
projects for personnel of the Armed Forces of the Philippines, Philippine National
Police, Bureau of Fire Protection, Bureau of Jail Management and Penology, and
Philippine Coast Guard; and seller of the Kalikasan Housing property.
3. Rural Bank- lender in a Loan and Mortgage Agreement with Spouses Cacayorin

FACTS:

Oscar Cacayorin filed an application with Armed Forces and Police Mutual Benefit
Association, Inc. (AFPMBAI) to purchase a piece of property which the latter owned,
through a loan facility. To gain financing, Oscar and his wife, Thelma, entered into a Loan
and Mortgage Agreement with the Rural Bank, under the auspices of Pag-IBIG or Home
Development Mutual Fund’s Home Financing Program. Then, Rural Bank issued a letter
of guaranty informing AFPMBAI that the proceeds of the approved loan shall be released
to AFPMBAI after title to the property is transferred in petitioners’ name and after the
registration and annotation of the parties’ mortgage agreement. Subsequently, AFPMBAI
complied and thus executed a Deed of Absolute Sale in the favor of Cacayorin and a new
title was also subsequently issued in their name, with the annotation of their mortgage
agreement with the Rural Bank. Unfortunately, the Pag-IBIG loan facility did not push
through; and the Rural Bank had closed. AFPMBAI was able to take possession of
petitioners’ loan documents, while petitioners were unable to pay the loan.

AFPMBAI made oral and written demands for petitioners to pay the loan/ consideration
for the property.

In July 2003, Cacayorin filed a Complaint for consignation of loan payment, recovery of
title and cancellation of mortgage annotation against AFPMBAI, PDIC and the Register
of Deeds of Puerto Princesa City. Petitioners alleged that as a result of the Rural Bank’s
closure and PDIC’s claim that their loan papers could not be located, they were in a
question as to where they should tender full payment of the loan. On the other hand,
AFPMBAI filed a Motion to Dismiss alleging that petitioners’ Complaint falls within the
jurisdiction of the Housing and Land Use Regulatory Board (HLURB) and not the Puerto
Princesa RTC; as it springs from their contractual relation as seller and buyer of a
subdivision lot. It also alleges that the consignation made by Cacayorin was defective as
there was no prior valid tender of payment.
ISSUE:

1. Whether or not the case makes out for consignation; and

2. Whether or not the Complaint filed by Cacayorin fall within the exclusive jurisdiction
of the HLURB?

RULING

First Issue

Yes. It makes out a case for consignation. 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 this case as shaped by the allegations in their Complaint, the Court finds
that a case for consignation has been made out, as there are two entities which petitioners
must deal with in order to fully secure their property’s title: 1) the Rural Bank (through
PDIC); and 2) AFPMBAI. Moreover, the allegations in the Complaint establish that the
creditor is unknown, or that two or more entities appear to possess the same right to
collect from Spouses Cacayorin.

Second Issue

No, consignation is judicial. Under Art. 1258 of the New Civil Code, 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.

Thus, jurisdiction lies with the RTC, not with the HLURB.
Philippine National Bank vs. Lilibeth S. Chan

G.R. No. 206037 March 13, 2017

CHARACTERS:

1. Lilibeth Chan- owner of a three-story commercial building located along Paco,

Manila; lessor of the commercial building; and borrower of PNB in a loan secured
by a Real Estate Mortgage
2. Philippine National Bank- lessee of the commercial building of Chan; and lender
of Chan in a loan secured by a Real Estate Mortgage

FACTS:

Lilibeth Chan owns a three-story commercial building which she leased to Philippine
National Bank (PNB) for five years with a monthly rental of ₱76,160.00. When the lease
ended, PNB continued to occupy the property on a month-to-month basis with a monthly
rental of ₱116,788.44. PNB vacated the premises on March 23, 2006.

On January 22, 2002, Chan obtained a ₱1,500,000.00 loan from PNB which was secured
by a Real Estate Mortgage constituted over the leased property. Moreover, Chan
executed a Deed of Assignment over the rental payments in favor of PNB.

On August 26, 2005, Chan filed a Complaint for Unlawful Detainer against PNB, alleging
that the latter failed to pay its monthly rentals from October 2004 until August 2005.

However, PNB claimed that it applied the rental proceeds from October 2004 to January
15, 2005 as payment for respondent's outstanding loan which became due and
demandable in October 2004. Moreover, PNB said that it received a demand letter from
a certain Lamberto Chua who claimed to be the new owner of the leased property; thus,
PNB deposited the rentals from January 16, 2005 to February 2006 in a separate non-
drawing savings account for the benefit of the said person.

On April 25, 2006, in a hearing, the parties agreed to apply the rental proceeds from
October 2004 to January 15, 2005 to Chan's outstanding loan. Also, PNB consigned the
amount of ₱1,348,643.92, representing the rentals due from January 16, 2005 to
February 2006, with the court.

ISSUE

Whether or not the petitioner can properly consign the disputed rental payments in the
amount of P1, 348,643.92 with the Office of the Clerk of Court of the MeTC of Manila.

RULING
Yes, PNB can properly consign the disputed rental payments. Under Article 1256 of the
Civil Code, consignation alone is sufficient even without a prior tender of payment a) when
the creditor is absent or unknown or does not appear at the place of payment; b) when
he is incapacitated to receive the payment at the time it is due; c) when, without just cause,
he refuses to give a receipt; d) when two or more persons claim the same right to collect;
and e) when the title of the obligation has been lost.

For consignation to be valid, the debtor must comply with the following requirements
under the law:

1) there was a debt due;

2) valid prior tender of payment, unless the consignation was made because of some
legal cause provided in Article 1256;

3) previous notice of the consignation has been given to the persons interested in the
performance of the obligation;

4) the amount or thing due was placed at the disposal of the court; and,

5) after the consignation had been made, the persons interested were notified thereof.

Here, it was established that: first, PNB had the obligation to pay Chan the amount of
₱1,348,643.92, as rental payments; second, PNB had the option to pay the monthly
rentals to respondent or to apply the same as payment for respondent's loan with the
bank, but PNB did neither; third, PNB opened a non-drawing savings account where it
deposited the subject monthly rentals, due to the claim of Chua; and fourth, PNB
consigned the amount due with the Office of the Clerk of Court of the MeTC of Manila.

PNB's deposit of the subject monthly rentals in a non-drawing savings account is not the
consignation contemplated by law. Consignation is necessarily judicial, as provided under
Article 1258 of the New Civil Code:

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.

Applying the foregoing, PNB's obligation to pay rent for the period of January 16, 2005
up to March 23, 2006 remained subsisting, as the deposit of the rentals cannot be
considered to have the effect of payment.
ART. 1266-12677: Doctrine of Unforeseen Events In Obligations To Do

Philippine National Construction vs. Court Of Appeals

G.R. No. 116896 May 5, 1997

CHARACTERS:

1. Philippine National Construction Corporation- grantee of a Temporary Use

Permit for the proposed rock crushing project from the Ministry of Human Settlements;
and lessee of the property as site, grounds and premises of a rock crushing plant and
field office, sleeping quarters and canteen/mess hall under a lease contract.
2. Ma. Teresa S. Raymundo-Abarra, Jose S. Raymundo, Antonio S. Raymundo,
Rene S. Raymundo, And Amador S. Raymundo- lessor of the said property under a lease
contract with Philippine National Construction Corporation.

FACTS:

Philippine National Construction (PNCC) refused to pay the rentals as stipulated in the
contract of lease on an undivided portion of 30,000 square meters of a parcel of land
owned by the Raymundos.

The lease contract, executed on 18 November 1985, reads in part as follows: 1. TERM
OF LEASE - This lease shall be for a period of five (5) years, commencing on the date of
issuance of the industrial clearance by the Ministry of Human Settlements, renewable for
a like or other period at the option of the LESSEE under the same terms and conditions.

11. TERMINATION OF LEASE - This Agreement may be terminated by mutual

agreement of the parties. Upon the termination or expiration of the period of lease without
the same being renewed, the LESSEE shall vacate the Leased Property at its expense.

PNCC obtained from the Ministry of Human Settlements a Temporary Use Permit for the
proposed rock crushing project. The permit was to be valid for two years unless sooner
revoked by the Ministry. Raymundos requested payment of the first annual rental in the
amount of P240,000 which was due and payable upon the execution of the contract from
PNCC. They also assured the latter that they had already stopped considering the
proposals of other aggregates plants to lease the property because of the existing
contract with PNCC.

PNC argued that under paragraph 1 of the lease contract, payment of rental would
commence on the date of the issuance of an industrial clearance by the Ministry of Human
Settlements, and not from the date of signing of the contract. It then expressed its
intention to terminate the contract, as it had decided to cancel or discontinue with the rock
crushing project due to financial, as well as technical, difficulties.
ISSUE:

Whether Philippine National Construction should be released from its obligation to pay
for the rentals?

RULING:

Philippine National Construction is not released from its obligation to pay for the rentals

PNCC cannot successfully take refuge in Article 1266, since it is applicable only to
obligations "to do", and not to obligations "to give". An obligation "to do" includes all kinds
of work or service; while an obligation "to give" is a prestation which consists in the
delivery of a movable or an immovable thing in order to create a real right, or for the use
of the recipient, or for its simple possession, or in order to return it to its owner.

The obligation to pay rentals or deliver the thing in a contract of lease falls within the
prestation to give; hence, it is not covered within the scope of Article 1266. At any rate,
the unforeseen event and causes mentioned by PNCC are not the legal or physical
impossibilities contemplated in said article. Besides, PNCC failed to state specifically the
circumstances brought about by the abrupt change in the political climate in the country
except the alleged prevailing uncertainties in government policies on infrastructure
projects.

The principle of rebus sic stantibus neither fits in with the facts of the case. Under this
theory, the parties stipulate in the light of certain prevailing conditions, and once these
conditions cease to exist the contract also ceases to exist. Article 1267, 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.
VICTORINO MAGAT, JR. substituted by heirs, OLIVIA D. MAGAT, and minors MA.
DULCE MAGAT, MA. MAGNOLIA MAGAT, RONALD MAGAT and DENNIS MAGAT
vs.
COURT OF APPEALS and SANTIAGO A. GUERRERO

G.R. No. 124221 August 4, 2000

CHARACTERS:

1. Santiago A. Guerrero- President and Chairman of the Guerrero Transport Services;

executed a letter-contract with Magat for the purchase of transceivers.

2. Victorino D. Magat- General Manager of Spectrum Electronic Laboratories; executed

a letter-contract for the purchase of transceivers with Guerrero

3. Olivia D. Magat, and minors Ma. Dulce Magat, Ma. Magnolia Magat, and Dennis
Magat- heir of Victorino Magat who substituted him in this case

FACTS:

In 1972, Guerrero Transport Services won on a bidding to operate a fleet of taxicabs in

Subic. Guerrero was required to provide radio-controlled taxi service within the U.S. Naval
Base, Subic Bay. Guerrero and Magat, then executed a letter-contract for the purchase
of transceivers at $77,620.59. Magat then contacted his Japanese supplier (Koide & Co.,
Ltd.) and placed an order for the transceivers.

On Sept. 22, 1972, in the event of the Martial Law, then President Marcos issued the
Letter of Instructions (LOI) no. 1 which provides for the “SEIZURE AND CONTROL OF
ALL PRIVATELY OWNED NEWSPAPERS, MAGAZINES, RADIO AND TELEVISION
FACILITIES AND ALL OTHER MEDIA OF COMMUNICATION.”; said LOI was for the
prevention of Propaganda actions against the government. Pursuant to the LOI, the Radio
Control Office issued Administrative Circular no. 4, which suspended the sale and
purchase of radio transmitters or transceivers.

Here, the permit to import the transceivers was denied; hence, Guerrero was not able to
obtain the necessary letter of credit from Central Bank due to the refusal of the Philippines.
Guerrero commenced operation of the taxi cabs within Subic Naval Base, using radio
units. Victorino thus canceled his order with his Japanese supplier.

On May 22, 1973, Victorino filed with the Regional Trial Court, Makati a complaint for
damages arising from breach of contract against Guerrero.

ISSUE: Whether there is a breach of contract on Guerrero’s part.

RULING: Guerrero did not commit any breach at all.

The law provides that "[w]hen the service (required by the contract) has become so
manifestly beyond the contemplation of the parties, the obligor may also be released
therefrom, in whole or in part." Here, Guerrero's inability to secure a letter of credit and to
comply with his obligation was a direct consequence of the denial of the permit to import.
For this, he cannot be faulted.

Also, there was no bad faith. Guerrero honestly relied on the representations of the Radio
Control Office and the Office of the President. True, Guerrero borrowed equipment from
the Subic Naval Base authorities at zero cost. This does not automatically translate to
bad faith. Guerrero was faced with the danger of the cancellation of his contract with Subic
Naval Base. He borrowed equipment as a prudent and swift alternative. There was no
proof that he resorted to this option with a deliberate and malicious intent to dishonor his
contract with Victorino. An award of damages surely cannot be based on mere
hypotheses, conjectures and surmises.