Soco vs. Hon. Militante, et al.

June 28, 1983 [GRN 58961 June 28, 1983]

FACTS: The plaintiff-appellee-Soco (lessor) and the defendant-appellant-Francisco
(lessee) entered into a contract of lease on for commercial building and lot for a monthly
rental of P800.00 for a period of 10 years renewable for another 10 years at the option of
the lessee. One time, Francisco noticed that Soco did not anymore send her collector for
the payment of rentals and at times there were payments made but no receipts were
issued. Soon after Soco learned that Francisco sub-leased a portion of the building to
NACIDA, at a monthly rental of more than P3,000.00 which is definitely very much
higher than what Francisco was paying to Soco under the Contract of Lease, the latter felt
that she was on the losing end of the lease agreement so she tried to look for ways and
means to terminate the contract. Taking into account the factual background setting of
this case, the Court holds that there was in fact a tender of payment of the rentals made
by Francisco to Soco through Comtrust and since these payments were not accepted by
Soco evidently because of her intention to evict Francisco, by all means, Francisco was
impelled to deposit the rentals with the Clerk of Court of the City Court of Cebu, Soco
was notified of this deposit. She was further notified of these payments by consignation.
The City Court declared the payments of rentals valid and effective.
ISSUE:

Whether

or

not

the

consignation

was

valid

and

effective.

HELD: In order that consignation may be effective, the debtor must first comply with
certain requirements prescribed by law. The debtor must show (1) that there was a debt
due; (2) that the consignation of the obligation had been made because the creditor to
whom tender 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
(Art. 1176, Civil Code); (3) that previous notice of the consignation had been given to the
person interested in the performance of the obligation (Art. 1177, Civil Code); (4) that the
amount due was placed at the disposal of the court (Art. 1178, Civil Code); and (5) that
after the consignation had been made the person interested was notified thereof (Art.
1178, Civil Code). Failure in any of these requirements is enough ground to render a
consignation
ineffective.
SC ruled that the essential requisites of a valid consignation must be complied with fully
and strictly in accordance with the law, as Articles 1256 to 1261, New Civil Code say.
Substantial compliance is not enough for that would render only a directory construction
to the law. The use of the words "shall" and "must" which are imperative, operating to
impose a duty which may be enforced, positively indicate that all the essential requisites
of a valid consignation must be complied with. The Civil Code Articles expressly and
explicitly direct what must be essentially done in order that consignation shall be valid
and effectual, as the law provides in Art 1257, 1258, 1249. SC held that the respondent
lessee has utterly failed to prove the requisites of a valid consignation.

IN RE: PETITION FOR VOLUNTARY INSOLVENCY OF UY TONG vs. MARIO

R. SILVA, assignee, EDUARDO LOPEZ , G.R. No. L-28377 October 1, 1984
Direct appeal on a pure question of law from the orders of the then Court of First Instance
of Manila, Branch XXI, sitting as an insolvency court in Special Proceedings No. 29835,
entitled "In Re: Petition for Voluntary Insolvency of Uy Tong alias Teodoro Uy,"
declaring as duly proved the indebtedness of insolvent Uy Tong in favor of herein
appellants, claimants Eduardo Lopez, et al., in the amount of P100,575.00 with legal
interest from August 10, 1954; but denying the set-off of such amount against the
indebtedness of said claimants to insolvent Uy Tong amounting to P55,000.00 with legal
interest from February 24, 1954, until the preferred claims shall have been fully satisfied.
Unquestionably, the principle of compensation or set-off as recognized both in Article
1279 of the Civil Code 1 and Section 58 of the Insolvency Law 2 is applicable to the case
at bar. However, the amount which claimants Eduardo Lopez, et al., may set off against
their indebtedness in favor of insolvent Uy Tong is limited only to the rentals of the
Benavides Building due from the latter for the period from February 28, 1955 up to May
25, 1955, the date when the petition for voluntary in solvency was filed, and not the
whole amount representing rentals from February 28, 1955 to June 16, 1961. It is a
settled principle that "a debt of the bankrupt arising prior to the bankruptcy cannot be set
off against installments of rent falling due after bankruptcy, although the installments are
payable under a written lease in effect before the bankruptcy." 3 Upon this premise, the
conclusion is easily reached that the debt of claimants which arose prior to bankruptcy
cannot be set-off against the installments of rent falling due from the insolvent after
bankruptcy. The reason therefor is quite evident: with respect to the difference between
the debt of claimants Eduardo Lopez, et al., in the amount of P55,000.00 plus interest,
and the rentals corresponding to the period from February 28 to May 25, 1955, retention
or controversy had been effectively commenced by third persons upon their filing of
claims in the insolvency proceedings of which claimants Lopez, et al., had due notice.
For compensation to take place, it is necessary, among other legal requisites, "that over
neither of them (the two debts) there be any retention or controversy, commenced by
third persons and communicated in due time to the debtor." 4 This essential element of
compensation
being
absent,
the
same
cannot
take
place.
Besides, to allow compensation to the concurrent amount of the mutual debts and credits
would in effect give claimants Lopez, et al., undue preference over other creditors, as
such set-off will totally deplete the estate of the insolvent, a situation entirely contrary to
the purpose of insolvency proceedings, which is to effect an equitable distribution of the
insolvent's estate among his creditors.
WHEREFORE, the orders appealed from are hereby modified in the sense that claimants
Eduardo Lopez, et al., are allowed to set off from their indebtedness of P55,000.00 plus
interest, whatever amount was due from insolvent Uy Tong as rentals of the Benavidez
Building from February 28 to May 25, 1955. The difference shall be paid pro rata with
other unpreferred claims, but only after the preferred claims, if any, shall have been
satisfied. Let the records of this case be remanded to the court a quo for further
proceedings. No costs.

Luzon Devt. Bank. vs. Enriquez

G.R. No.168646/G.R. No. 168666: January 12, 2011
FACTS: Delta Development and Management Services (Delta) entered into a loan with
Luzon Development Bank (Bank), secured by a Real Estate Mortgage. The REM was
amended to include a bigger sum loaned from the bank. The proceeds of the loan were
applied to Delta project of developing a subdivision. It subsequently entered into a
contract to sell with Angeles Enriquez (Enriquez) over one of the subdivision lots.
Enriquez was able to pay around half of the value of the property. Subsequently, Delta
was unable to pay for the loan it took with the bank, but instead of letting the bank
foreclose on the mortgaged properties, it entered into a dacionen pago (dation in
payment) where it turned over property to the bank. The property subject to the contract
to sell with Enriquez was included in the dation. Enriquez protested the transaction
through the regional office of the HLURB. She is asking for a refund of the purchase
price pointing out that, the agreed upon amount exceeded the limit prescribed by PD 957,
or The Subdivision and Condominium Buyer Protective Decree, and that the mortgage
Delta entered into was invalid per PD 957. The HLURB ruled in favor of Enriquez, but
did not approve a refund. Instead, it reduced the balance due for the property. Delta
appealed the ruling, and was able to get a better ruling from the commissioner. The Office
of the President affirmed the ruling. However, when Enriquez appealed to the Court of
Appeals, the CA invalidated the dation, saying that Delta lost ownership over the
property of Enriquez and could not have validly conveyed the same. Delta and the Bank
come before the Supreme Court to question the ruling. The Bank is also asking for the
liability of Delta if it loses one of the properties to Enriquez.

ISSUES: Whether or not the dacion en pago is valid. Whether or not Delta is liable to the
Bank should Enriquez gain ownership of theproperty.

HELD: The petition is partly meritorious.

Civil Law: The mortgage entered into by Delta and the Bank is void for violation of PD
957. However, this does not, in any way, invalidate the dacion en pago. The CA erred
when it ruled that Delta lost ownership over the property subject of the contract to sell.
The very nature of a contract to sell is that the ownership vests upon full payment of the
purchase price. Hence there was no impediment in the dacion. Delta cannot be held liable
should Enriquez gain ownership over the land. The effect of the dacion is that the Bank
becomes a party in the contract to sell with Enriquez, replacing Delta. Enriquez now
owes the Bank the balance of the purchase price of the property. It is the intention of the
dacion to extinguish the obligation of Delta in exchange for properties. There are no other
conditions. Also, as a financial institution, the Bank should have exercised greater
diligence. It cannot claim to be a transferee in good faith. However, Enriquez is liable for
the amount agreed upon. The agreement was done in good faith, and Enriquez agreed to

the contract price. It cannot be challenged anymore.

Filinvest Credit Corporation vs. Phil. Acetylene Co., 197 Phil 394
Facts:
Philippine Acetylene Co. purchased from Alexander Lim a motor vehicle described as
Chevorlet 1969 model for P55K to be paid in installments. As security for the payment of
said promissory note, the appellant executed a chattel mortgage over the same motor
vehicle in favor of said Alexander Lim. Then, Lim assigned to the Filinvest all his rights,
title, and interests in the promissory note and chattel mortgage by virtue of a Deed of
Assignment.

Phil Acetylene defaulted in the payment of nine successive installments. Filinvest sent a
demand letter. Replying thereto, Phil Acetylene wrote back of its desire to return the
mortgaged property, which return shall be in full satisfaction of its indebtedness. So the
vehicle was returned to the Filinvest together with the document Voluntary Surrender
with Special Power of Attorney To Sell. Filinvest failed to sell the motor vehicle as there
were unpaid taxes on the said vehicle. Filinvest requested the appellant to update its
account by paying the installments in arrears and accruing interest. Filinvest offered to
deliver back the motor vehicle to the appellant but the latter refused to accept it, so
appellee instituted an action for collection of a sum of money with damages.

Phil Acetylenes defense: The delivery of the motor vehicle to Filinvest extinguished its
money obligation as it amounted to a dation in payment. Assuming arguendo that the
return did not extinguish, it was justified in refusing payment since the appellee is not
entitled to recover the same due to the breach of warranty committed by the original
vendor-assignor Alexander Lim.
Issue:
WON there was dation in payment that extinguished Phil Acetylenes obligation.
Held:
The mere return of the mortgaged motor vehicle by the mortgagor does not constitute
dation in payment in the absence, express or implied of the true intention of the parties.
Dacion en pago is the transmission of the ownership of a thing by the debtor to the
creditor as an accepted equivalent of the performance of obligation. In dacion, the debtor
offers another thing to the creditor who accepts it as equivalent of payment of an
outstanding debt. The undertaking really partakes in one sense of the nature of sale, that
is, the creditor is really buying the thing or property of the debtor, payment for which is
to be charged against the debtors debt. As such, the essential elements of a contract of

sale, namely, consent, object certain, and cause or consideration must be present. In its
modern concept, what actually takes place in dacion en pago is an objective novation of
the obligation where the thing offered as an accepted equivalent of the performance of an
obligation is considered as the object of the contract of sale, while the debt is considered
as the purchase price. In any case, common consent is an essential prerequisite, be it sale
or innovation to have the effect of totally extinguishing the debt or obligation.

The evidence on the record fails to show that the Filinvest consented, or at least intended,
that the mere delivery to, and acceptance by him, of the mortgaged motor vehicle be
construed as actual payment, more specifically dation in payment or dacion en pago. The
fact that the mortgaged motor vehicle was delivered to him does not necessarily mean
that ownership thereof, as juridically contemplated by dacion en pago, was transferred
from appellant to appellee. In the absence of clear consent of appellee to the proferred
special mode of payment, there can be no transfer of ownership of the mortgaged motor
vehicle from appellant to appellee. If at all, only transfer of possession of the mortgaged
motor vehicle took place, for it is quite possible that appellee, as mortgagee, merely
wanted to secure possession to forestall the loss, destruction, fraudulent transfer of the
vehicle to third persons, or its being rendered valueless if left in the hands of the
appellant.

As to the strength of the Voluntary Surrender with Special Power of Attorney To Sell, it
only authorized Filinvest to look for a buyer and sell the vehicle in behalf of the appellant
who retains ownership thereof, and to apply the proceeds of the sale to the mortgage
indebtedness, with the undertaking of the appellant to pay the difference, if any, between
the selling price and the mortgage obligation. Filinvest in essence was constituted as a
mere agent to sell the motor vehicle which was delivered not as its property. If it were, he
would have full power of disposition of the property, not only to sell it.