CASE DIGESTS IN OBLIGATIONS AND CONTRACTS (CIVIL CODE BOOK IV)

UNDER THE TOPIC, EXTINGUISHMENT OF OBLIGATIONS

CINCO vs. COURT OF APPEALS
FACTS:
In December 1987, Manuel Go Cinco obtained a loan from the Maasin Traders Loan
Corporation in the sum of Php 700,000.00 as evidenced by a promissory note subject to a
monthly interest of 3% or 36% per annum and payable within a renewable period of 180
days and secured by a real estate mortgage over a land and 4-storey building. As of July
1989, Manuels obligation amounted to 1,071,256.66. To be able to pay the onerous loan,
Manuel and spouse applied for a loan with PNB and offered as collateral, the same land and
building previously mortgaged to MTLC which the bank approved in the sum of Php
1,300,000.00. Manuel executed a Special Power of Attorney authorizing Ester Servacio,
MTLC President to collect from the PNB the proceeds of the loan but the latter was required
to sign a Deed of Release/Cancellation of Mortgage. Outraged that the spouses used the
mortgage as collateral, Servacio refused to sign the deed and collect the loan proceeds. She
contends that it was unfair for respondents to require the release of the mortgage to MTLC
when no actual payment of the loan had been made.
ISSUE:
Whether or not actual payment of the loan had been made.
HELD:
No. Obligations are extinguished, among others, by payment or performance, the
mode most relevant to the factual situation in the present case. Article 1233 of the
Civil Code states that a debt shall not be understood to have been paid unless the
thing or service in which the obligation consists has been completely delivered or
rendered, as the case may be. In contracts of loan, the debtor is expected to
deliver the sum of money due the creditor. In the present case, Manuel sought to
pay Ester by authorizing her, through an SPA, to collect the proceeds of the PNB
loan. Had Ester presented the SPA to the bank and signed the deed of
release/cancellation of mortgage, the delivery of the sum of money would have
been effected and the obligation extinguished. As the records show, Ester refused
to collect and allow the cancellation of the mortgage.
SPOUSES DELA CRUZ vs. CONCEPCION
FACTS:
On 25 March 1996, the Petitioners Spouses Dela Cruz entered into a Contract to Sell with
Respondent Concepcion over a house and lot for a consideration of P2,000,000.00 subject
to terms and conditions. As of 7 July 1997, Respondents payments amounted to
P2,000,000.00 but before she could draw the last check, she informed the Petitioners that
her unpaid obligation as of 6 July was only P200,000.00. Petitioners agreed with
Respondent, and the title to the property was transferred to the latter. Petitioners later
reminded Respondent to pay P209,000.00 which according to them, have remained unpaid
despite the transfer of title. Failing to collect the sum despite repeated demands impelled
Petitioners to file a complaint for sum of money against Respondent in the RTC. In the
course of the trial, Petitioner presented a receipt purportedly indicating payment of the
remaining balance to one Adoracion Losloso who allegedly received the same on behalf of
Petitioners.
ISSUE:
Whether or not Respondents obligation had already been extinguished by
payment.
HELD:
YES. Respondents obligation consists of payment of a sum of money. In order to extinguish
said obligation, payment should be made to the proper person as set forth in Article 1240 of
the Civil Code, to wit: Payment shall be made to the person in whose favor the obligation
has been constituted, or his successor in interest, or any person authorized to receive it.
Admittedly, payment of the remaining balance of P200,000.00 was not made to the
creditors themselves. Rather, it was allegedly made to a certain Losloso. Respondent claims
that Losloso was the authorized agent of petitioners, but the latter dispute it. In a letter
dated 7 August 1997, petitioners reminded respondent of her remaining balance, together
with the amount of taxes paid. Taking into consideration the busy schedule of respondent,
petitioners advised the latter to leave the payment to a certain "Dori" who admittedly is
Losloso, or to her trusted helper. This is an express authority given to Losloso to receive
payment. Thus, as shown in the receipt signed by petitioners agent and pursuant to the
authority granted by petitioners to Losloso, payment made to the latter is deemed payment
to petitioners and effectively extinguished respondents obligation.
MAVEST USA, et. al. vs. SAMPAGUITA GARMENTS CORPORATION

CASE DIGESTS IN OBLIGATIONS AND CONTRACTS (CIVIL CODE BOOK IV)

UNDER THE TOPIC, EXTINGUISHMENT OF OBLIGATIONS
FACTS:
Petitioners Mavest USA and Mavest Manila Liaison Office entered into a series of
transactions with Sampaguita Garments Corporation whereby the former would furnish from
abroad raw materials to be manufactured by the latter into finished products for shipment
to foreign buyers, Sears Roebuck and JC Penney. Each transaction was embodied in a
purchase order specifying the style and description. JC Penney ordered 8,000 pieces of
Cotton Woven Pants at $3.65 a piece or a total of $29,200.00. Despite the shipment and
receipt by JC Penney of said orders, no payment was made prompting Respondent to send
demand letters which were unheeded. Respondent then filed a complaint for the collection
of $29,200.00 with damages before the RTC against Petitioners. The latter contends that
Respondent has already been paid by virtue of legal compensation since Respondent
likewise owes a sum of money in the form of damages and losses as a result of breaches it
committed in previous shipments to Sears Roebuck.
ISSUE:
Whether or not the unpaid amount due respondent has been extinguished by
reason of legal compensation.
HELD:
NO. Concededly, the Civil Code lists compensation as one of the modes of extinguishing the
obligations of persons who, in their own right, are creditors and debtors of each other. For
compensation, legal or conventional, to validly take place, such requires confluence in the
parties of the characters of mutual debtors and creditors, but their rights as such creditors
or obligations as such debtors, need not spring from one and the same contract or
transaction. Legal compensation could not have occurred in this case. The appellate court
pointed to the fact that petitioners, on one hand, and respondent, on the other, are not
mutually bound as creditors and debtors. It was only the Petitioners debt to the respondent
that had been rightfully established. It was observed that petitioners even acknowledged
their obligation to respondent in the amount of US$29,200.00. They failed to establish
Respondents purported liability to them which would have then set the automatic operation
of legal compensation in motion.
DEVELOPMENT BANK OF THE PHILIPPINES vs. UNION BANK
FACTS:
Foodmasters Inc. had outstanding loan obligations to Petitioner and Bancom
Development Corporation, Respondents predecessor-in-interest. Foodmasters
ceded in favor of the DBP certain properties including a processing plant in
consideration of the full and complete satisfaction of its loan obligations to DBP
and assumption by DBP of Foodmasters obligations to Bancom in the sum of
P17,000,000.00. DBP leased back the processing plant to Foodmasters which was
in turn obliged to pay monthly rentals to be shared by DBP and Bancom under a
separate agreement. Subsequently, Bancom conveyed all its receivables, including
inter alia, DBPs assumed obligations to Union Bank. Claiming that the subject
rentals have not been duly remitted despite its repeated demands, Union Bank
filed a collection case against DBP before the RTC which ruled in favor of Union
Bank and issued a writ of execution against DBP. When the matter reached SC, the
writ was nullified and Union Bank was ordered to return the sums it received from
DBP pursuant thereto. The RTC implemented the same in another writ of
execution. To offset the return of the funds it previously received from DBP, Union
Bank filed a motion to affirm legal compensation but was denied by the RTC for
lack of merit and affirmed by CA.
ISSUE:
Whether or not the appellate court correctly upheld the denial of Union Banks
motion to affirm legal compensation.
HELD:
YES. Art. 1279 states that in order that legal compensation may be proper, it is necessary:
(1) that each one of the obligors be bound principally, and that he be at the same time a
principal creditor of the other; (2) that both debts consist in a sum of money, or if the
things due are consumable, they be of the same kind, and also of the same quality if the
latter has been stated; (3) that the two debts be due; (4) that they be liquidated and
demandable; (5) that over neither of them there be any retention or controversy,
commenced by third persons and communicated in due time to the debtor. In the case at
bar, legal compensation could not have taken place between these debts for the apparent
reason that requisites 3 and 4 under Article 1279 of the Civil Code are not present. Since
DBPs assumed obligations to Union Bank for remittance of the lease payments are
contingent on the prior payment thereof by FW to DBP, it cannot be said that both debts are

CASE DIGESTS IN OBLIGATIONS AND CONTRACTS (CIVIL CODE BOOK IV)

UNDER THE TOPIC, EXTINGUISHMENT OF OBLIGATIONS
due. It cannot also be concluded that the same debt had already been liquidated and
thereby became demandable since any deficiency that DBP had to make up for the full
satisfaction of the assumed obligations cannot be determined until after the satisfaction of
Foodmasters obligation to DBP.
SPS. FABRIGAS vs. SAN FRANCISCO DEL MONTE INC.
FACTS:
Petitioners Spouses Fabrigas and Respondent San Francisco Del Monte Inc. entered to an
agreement known as Contract to Sell No. 2482-V covering the latters residential land in
Barrio Almanza, Las Pias City, Metro Manila. Petitioners made a downpayment of
P30,000.00 pursuant to the Contract, and took possession of the property. However, for
failing to make installments on the balance of the purchase price in spite of demand letters
sent on different occasions, Respondent cancelled the contract without notice to Petitioners.
After remitting some payments, Petitioner entered into a new Contract to Sell (2491-V) with
Respondent covering the same property and under restructured terms of payment. The
Contract was partially and irregularly complied with but thereafter, Respondent again
demanded for the payment of accrued installments. For failing to pay despite due notice,
Respondent filed a case for recovery of possession with damages.
ISSUE:
Was Contract to Sell No. 2482-V extinguished through rescission or was it novated
by the subsequent Contract to Sell No. 2491-V?
HELD:
YES by novation. Novation, in its broad concept, may either be extinctive or
modificatory. An extinctive novation results either by changing the object or
principal conditions (objective or real), or by substituting the person of the debtor
or subrogating a third person in the rights of the creditor (subjective or personal).
The facts of the case show that Contract to Sell No. 2482-V was subsequently
novated by Contract to Sell No. 2491-V. The execution of Contract to Sell No.
2491-V accompanied an upward change in the contract price, which constitutes a
change in the object or principal conditions of the contract. In entering into
Contract to Sell No. 2491-V, the parties were impelled by causes different from
those obtaining under Contract to Sell No. 2482-V. On the part of petitioners, they
agreed to the terms and conditions of Contract to Sell No. 2491-V not only to
acquire ownership over the subject property but also to avoid the consequences of
their default under Contract No. 2482-V. On Del Montes end, the upward change
in price was the consideration for entering into Contract to Sell No. 2491-V.
NARCISO DEGAOS vs. PEOPLE OF THE PHILIPPINES
FACTS:
Accused Degaos obtained from Lydia Bordador pieces of jewelry which were delivered to
his sister and co-accused, Brigida/Aida Luz for her to sell under the condition that if they
could not pay it in cash, they should pay it after one month or return the unsold jewelry
within the said period. Bordador had been delivering jewelry to Brigida/Aida Luz through
Degaos since 1986 as evidenced by several documents. Everytime Degaos got jewelry
from her, he signed receipts in her presence. They were able to pay only up to a certain
point, however receipt nos. 614-745 were no longer paid and accused failed and refused to
pay and return the jewelry covered by such receipts despite oral and written demands.
Hence, accused Degaos and Brigida/Aida Luz were charged for estafa.
ISSUE:
Whether or not novation had converted the liability of the accused into a civil one?
HELD:
NO. Novation is not a ground under the law to extinguish criminal liability. Article 89 (on
total extinguishment) and Article 94 (on partial extinguishment) of the Revised Penal Code
list down the various grounds for the extinguishment of criminal liability. Not being included
in the list, novation is limited in its effect only to the civil aspect of the liability, and, for that
reason, is not an efficient defense in estafa. This is because only the State may validly
waive the criminal action against an accused. The role of novation may only be either to
prevent the rise of criminal liability, or to cast doubt on the true nature of the original basic
transaction, whether or not it was such that the breach of the obligation would not give rise
to penal responsibility, as when money loaned is made to appear as a deposit, or other
similar disguise is resorted to.

CASE DIGESTS IN OBLIGATIONS AND CONTRACTS (CIVIL CODE BOOK IV)

UNDER THE TOPIC, EXTINGUISHMENT OF OBLIGATIONS
LEONARDO BOGNOT vs. RRI LENDING CORPORATION
FACTS:
Petitioner Leonardo and his brother Rolando Bognot applied for and obtained a loan of
P500,000.00 from Respondent RRI Lending Corporation payable on 30 November 1996 as
evidenced by a promissory note and secured by a check postdated to said date. Petitioner
renewed the loan several times on a monthly basis by paying renewal fees, issuing
postdated checks and executing/renewing promissory notes. Days before the loans
maturity, Mrs. Bongot applied for another renewal, signed a promissory note anew and
issued a check for the renewal fee. She also brought home the loan documents purportedly
for the siblings signatures but were never returned. Consequently, Respondent sent followup letters demanding payment of the loan plus interest and penalty charges but these
demands were unheeded. In the proceedings before the RTC for sum of money, Petitioner
claims that there is no cause of action since Respondents claim had been paid, waived,
abandoned or otherwise extinguished.
ISSUE:
Whether the parties obligation was extinguished by: (i) payment; and (ii)
novation by substitution of debtors.
HELD:
NO as to both modes.I n the present case, the petitioner failed to satisfactorily
prove that his obligation had already been extinguished by payment. As the CA
correctly noted, the petitioner failed to present any evidence that the respondent
had in fact encashed his check and applied the proceeds to the payment of the
loan. Neither did he present official receipts evidencing payment, nor any proof
that the check had been dishonored. Contrary to the petitioners contention, Mrs.
Bognot did not substitute the petitioner as debtor. She merely attempted to renew
the original loan by executing a new promissory note and check. The purported
one month renewal of the loan, however, did not push through, as Mrs. Bognot did
not return the documents or issue a new postdated check. Since the loan was not
renewed for another month, the original due date, June 30,1997, continued to
stand. More importantly, the respondent never agreed to release the petitioner
from his obligation. That the respondent initially allowed Mrs. Bognot to bring
home the promissory note, disclosure statement and the petitioners previous
check dated June 30, 1997, does not ipso facto result in novation. Neither will this
acquiescence constitute an implied acceptance of the substitution of the debtor.