intent, ability and capability.
Hence, there was a
ART. 1256-1261 TENDER OF PAYMENT AND
CONSIGNATION
FAR EAST BANK & TRUST V. DIAZ REALTY INC. | G.R.
NO. 138588, AUGUST 23, 2001
Facts:
1. Diaz and Co. obtained a loan from Pacific
Banking Corp. in 1974 in the amount of P720,000 at
12% interest p.a. which was increased thereafter.
The said loan was secured with a real estate
mortgage over two parcels of land owned by Diaz
Realty, herein respondent. Subsequently, the loan
account was purchased by the petitioner Far East
Bank (FEBTC). Two years after, the respondent
through its President inquired about its obligation
and upon learning of the outstanding obligation, it
tendered payment in the form of an Interbank
check in the amount of P1,450,000 in order to avoid
the further imposition of interests. The payment was
with a notation for the full settlement of the
obligation.
2. The petitioner accepted the check but it alleged
in its defense that it was merely a deposit. When the
petitioner refused to release the mortgage, the
respondent filed a suit. The lower court ruled that
there was a valid tender of payment and ordered
the petitioner to cancel the mortgage. Upon
appeal, the appellate court affirmed the decision.
Issue: Whether or not there was a valid tender of
payment to extinguish the obligation of the
respondent
RULING: Yes. Although jurisprudence tells us that a
check is not a legal tender and a creditor may
validly refuse it, this dictum does not prevent a
creditor from accepting a check as payment.
Herein, the petitioner accepted the check and the
same was cleared.
A tender of payment is the definitive act of of
offering the creditor what is due him or her,
together with the demand that he accepts it. More
important is that there must be a concurrence of
intent, ability and capability to make good such
offer, and must be absolute and must cover the
amount due. The acts of the respondent manifest its
valid tender of payment.
Meanwhile, the transfer of credit from Pacific Bank
to the petitioner did not involve an effective
novation but an assignment of credit. As such, the
petitioner has the right to collect the full value of
the credit from the respondent subject to the
conditions of the promissory note previously
executed.
PABUGAIS V. SAHIJWANI (2004)
Facts:
Pursuant to an "Agreement And Undertaking",
Pabugais, inconsideration of the amount
P15,487,500.00, agreed to sell to Sahijwani, a lot
containing 1,239 square meters located at
Jacaranda Street, North Forbes Park, Makati City.
Sahijwani paid Pabugais the amount of 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, simultaneous with
delivery of the owner's duplicate Transfer Certificate
of Title in Sahijwani's name the Deed of Absolute
Sale; the Certificate of Non-Tax Delinquency on real
estate taxes and Clearance on Payment of
Association Dues.
Paragraph 5 of the agreement said: “DEFAULT — In
case the FIRST PARTY [Sahijwani] fails to pay the
balance of the purchase price within the stipulated
due date, the sum of P600,000.00 shall be deemed
forfeited, on the other hand, should the SECOND
PARTY [Pabugais] fail to deliver within the stipulated
period the documents hereby undertaken, the
SECOND PARTY shall return the sum of P600,000.00
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 P600,000.00 option/reservation
fee by way of Far East Bank & Trust Company which
was, however, dishonored.
According to Pabugais, he twice tendered to
Sahijwani, through his counsel, P672,900.00
(representing the P600,000.00 option/reservation
fee plus 18% interest per annum computed from
December 3, 1993 to August 3, 1994) in the form of
a check but said counsel refused to accept the
same (1st-via messenger; 2nd-via DHL). Because of
these refusals, he wrote a letter saying that he was
consigning the amount tendered with the RTC
Makati City.
According toSahijwani, his office received
Pabugais's letter but claimed that no check was
appended thereto. He averred that there was no
valid tender of payment because no check was
tendered and the computation of the amount to
be tendered was insufficient, because
Pabugaisverbally promised to pay 3% monthly
interest and 25% attorney's fees as penalty for
default, in addition to the interest of 18% per annum
on the P600, 000.00 option/reservation fee.
On November 29, 1996, the TC rendered a decision
declaring the consignation invalid for failure to
prove that Pabugais tendered payment to
Sahijwani and that the latter refused to receive the
same. It further held that even assuming that
Sahijwani refused the tender, the same is justified
because the manager’s check allegedly offered by
Pabugais was not legal tender, hence, there was
no valid tender of payment.
Pabugais appealed to the CA. On January 7, 2002,
Pabugais filed an Ex Parte Motion to Withdraw
Consigned Money.Pabugais’s motion to withdraw
the amount consigned was denied by the CA and
the decision of the trial court was affirmed with
modification as to the amount of moral damages
and attorney’s fees.
OnMR, the CA declared the consignation as valid
in an Amended Decision.It held that the validity of
the consignation had the effect of extinguishing
Pabugais’s obligation to return the
option/reservation fee to Sahijwani. Hence,
Pabugais can no longer withdraw the same.
Pabugais filed the instant petition for review
contendingthat he can withdraw the amount
deposited with the trial court as a matter of right
because at the time he moved for the withdrawal
thereof, the CA has yet to rule on the
consignation’s validity and the Sahijwani had not
yet accepted the same.
ISSUES:
 WoN there is a valid consignation
YES. The issues to be resolved in the instant case
concerns one of the important requisites of
consignation, i.e, the existence of a valid tender of
payment. As testified by the counsel for Sahijwani,
the reasons why his client did not accept
Pabugais’s 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
manager’s 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. Consequently, Pabugais’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 in the amount of P672,900.00
which was tendered but refused by Sahijwani, and
thereafter consigned with the court, was enough to
satisfy the obligation.
 WoN Pabugais withdraw the amount
consigned as a matter of right
NO. His reliance on Article 1260 of the Civil Code is
misplaced.
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 Pabugais’s obligation.
Moreover, 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 Sahijwani in exchange for the
amount deposited. Withdrawal of the money
consigned would enrich Pabugais and unjustly
prejudice Sahijwani.
NOTES (dicta, not raised before SC):
On December 20, 2001, Pabugais executed a
“Deed of Assignment” in favor of Atty. De Guzman,
Jr., part of the P672,900.00 consigned with the TC as
partial payment of the latter’s attorney’s fees.
On January 7, 2002, Atty. De Guzman, Jr.filed a
“Motion to Intervene,” praying that the amount
consigned be released to him by virtue of the Deed
of Assignment.
SC: The withdrawal of the amount deposited in
order to pay attorney’s fees to Pabugais’s counsel,
Atty. De Guzman, Jr., violates Article 1491 of the
Civil Code which forbids lawyers from acquiring by
assignment, property and rights which are the
object of any litigation in which they may take part
by virtue of their profession. Furthermore, Rule 10 of
the Canons of Professional Ethics provides that “the
lawyer should not purchase any interest in the
subject matter of the litigation which he is
conducting.” The assailed transaction falls within
the prohibition because the Deed assigning the
amount of P672,900.00 to Atty. De Guzman, Jr., as
part of his attorney’s fees was executed during the
pendency of this case with the Court of Appeals. In
his Motion to Intervene, Atty. De Guzman, Jr., not
only asserted ownership over said amount, but
likewise prayed that the same be released to him.
That Pabugais knowingly and voluntarily assigned
the subject amount to his counsel did not remove
their agreement within the ambit of the prohibitory
provisions. To grant the withdrawal would be to
sanction a void contract.
SPOUSES JAIME BENOS v. SPOUSES GREGORIO
LAWILAO | G.R. No. 172259, December 5, 2006
Facts:
On February 11,1999, petitioner-spouses Benos and
respondent Lawilao executed a Pacto de Retro
Sale where Benos sold their lot and the building
erected thereon for P300,000, one-half of which to
be paid in cash to the Benos and the other half to
be paid to the bank to pay off the loans of the
Benos which was secured by the same lot and
building. Under the contract, Benos could redeem
the property within 18 months from the date of
execution by returning the contract price,
otherwise, the sale would become irrevocable.
After paying the P150,000, Lawilao took possession
of the property, restructured it twicw, eventually the
loan become due and demandable. On August 14,
2000, a son of Benos and Lawilao paid the bankl
but the bank refused. Lawilao filed for consignation
against the bank and deposited the amount of
P159,000.00. RTC declared Lawilao of the ownership
of the subject property, which was affirmed by the
Court of Appeals.
Issue:
Whether or not the contract of Pacto de Retro Sale
be rescinded by the petitioner
Ruling:
In the instant case, records show that Lawilao filed
the petition for consignation against the bank in
Civil Case without notifying the Benos. Hence,
Lawilao failed to prove their offer to pay the
balance, even before the filing of the consignation
case. Lawilao never notified the Benos. 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.
Petition is granted. Court of Appeals decision is
reversed and set aside, that the Pacto de Retro
Sale is rescinded and petitioner are ordered to
return the amount of P150,000 to respondents.
CACAYORIN VS ARMED FORCES AND POLICE
MUTUAL BENEFIT ASSOCIATION | G.R. No. 171298 |
April 15, 2013
Facts:
Oscar Cacayorin is a member of Armed Forces and
Police Mutual Benefit Association Inc. (AFPMBA). In
1994, Oscar and his wife, Thelma applied to
purchase a piece of property owned by AFPMBA
located in Puerto Princesa through a loan facility.
To gain financing, the petitioners entered a Loan
and Mortgage Agreement with Rural Bank of San
Teodoro under the auspices of PAG-IBIG.
The Rural Bank thereafter issued a letter of
guaranty informing AFPMBAI that the proceeds of
petitioners’ approved loan in the amount
of P77,418.00 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. In response to such
letter of guaranty, AFPMBAI executed in petitioners
favor a Deed of Absolute Sale, and a new title was
also issued in petitioner’s name, with the
corresponding annotation of their mortgage
agreement with the Rural Bank.
Unfortunately, the arrangement between PAG-IBIG
and the Rural bank did not push through; the Rural
bank was closedand was placed under
receivership by the Philippine Deposit Insurance
Corporation (PDIC). Despite the closure though,
AFPMBAI somehow was able to take possession of
petitioners’ loan documents.
It so happened also that after AFPMBAI made a
demand for payment; petitioners were unable to
pay the loan/consideration for the property.
In July 2003, petitioners filed a Civil Case with the
RTC about a Complaintfor 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 in their Complaint that as a result
of the Rural Bank’s closure and PDIC’s claim that
their loan papers could not be located, they were
left in a quandary as to where they should tender
full payment of the loan and how to secure
cancellation of the mortgage annotation. In
response to this AFPMBAI filed a Motion to Dismiss,
claiming that petitioners Complaint falls within the
jurisdiction of the Housing and Land Use Regulatory
Board (HLURB) and not the Puerto Princesa RTC, as
it was filed by petitioners in their capacity as buyers
of a subdivision lot and it prays for specific
performance of contractual and legal obligations
decreed under Presidential Decree No. 957
Puerto Princessa RTC decided in favor of the
Cacayorins, declaring that since title has been
transferred in the name of petitioners and the
action involves consignation of loan payments, it
possessed jurisdiction to continue with the case. It
further held that the only remaining unsettled
transaction is between petitioners and PDIC as the
appointed receiver of the Rural Bank. AFPMBAI filed
a motion for reconsideration which was later
denied by the RTC.
The Court of Appeals on the other hand held an
opposite decision. It declared that the RTC has no
jurisdiction to hear the case and that such
jurisdiction is exclusive to the Housing and Land Use
Regulatory Board (HLURB).
Issue:
 Whether or not there is a valid consignation
albeit prior tender of payment
 Whether or not the court can exercise
authority over the issue of consignation with
regards to contractual and legal obligations
of parties in a sale of subdivision lots
Held:
AFFIRMATIVE. Under Article 1256 of the Civil
Code,the debtor shall be released from
responsibility by the consignation of the thing or
sum due, without need of prior tender of payment,
when the creditor is absent or unknown, or when he
is incapacitated to receive the payment at the
time it is due, or when two or more persons claim
the same right to collect, or when the title to the
obligation has been lost.
Applying Article 1256 to the petitioners’ case, with
regards to their allegations in their Complaint, the
Court finds that a case for consignation has arised,
as it now appears that there are two entities which
petitioners must deal with in order to fully secure
their title to the property: 1) the Rural Bank (through
PDIC), which is the apparent creditor under the July
4, 1994 Loan and Mortgage Agreement; and 2)
AFPMBAI, which is currently in possession of the loan
documents and the certificate of title, and the one
making demands upon petitioners to pay. Clearly,
the allegations in the Complaint present a situation
where the creditor is unknown, or that two or more
entities appear to possess the same right to collect
from petitioners. Whatever transpired between the
Rural Bank or PDIC and AFPMBAI in respect of
petitioners’ loan account, if any, such that AFPMBAI
came into possession of the loan documents , it
appears that petitioners were not informed thereof,
nor made privy thereto.
On the question of jurisdiction, Supreme Court
decided that petitioners’ case should be tried in the
Puerto Princesa RTC, and not the HLURB.
Consignation is necessarily judicial,as the Civil Code
itself provides that consignation shall be made by
depositing the thing or things due at the disposal of
judicial authority, thus:
Art. 1258. Consignation shall be made by depositing
the things due at the disposal of judicial authority,
before whom the tender of payment shall be
proved, in a proper case, and the announcement
of the consignation in other cases
ART. 1266-1267 DOCTRINE OF UNFORESEEN EVENTS
IN OBLIGATIONS TO DO
PHIL. NATIONAL CONSTRUCTION V. CA |GR 116896
Facts:
Petitioner PNC and private respondent entered into
a lease contract which term of lease states: 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.
Petitioner 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.
Private respondents wrote petitioner requesting
payment of the first annual rental in the amount
ofP240,000 which was due and payable upon the
execution of the contract. 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
petitioner.
In its reply-letter, petitioner 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."
Petitioner also argued that it was only obligated to
pay the amount ofP20,000.00 as rental payments
for the one-month period of lease, counted from 07
January 1986 when the Industrial Permit was issued
by the Ministry of Human Settlements up to 07
February 1986 when the Notice of Termination was
served" on private respondents.
RTC and CA ruled in favor of private respondent
ordering petitioner to pay P492,000.
Hence this petition.
Issue/ Ruling:
1. Petitioner argues that the Temporary Use
Permit is not the industrial clearance referred to in
the term of lease, therefore, do not make the
obligation effective. ---They are already estopped
from claiming that TUP was not the industrial
clearance contemplated in the contract. In the
letter they sent, it can be gleamed that the
petitioner considered the TUP as an industrial
clearance; otherwise, petitioner could have simply
told the private respondents that its obligation to
pay rentals has not yet arisen because the
Temporary Use Permit is not the industrial clearance
contemplated by them.
Instead, petitioner recognized its obligation to pay
rental counted from the date the permit was issued.
In another letter conforming to the termination of
the contract, it can be deduced from this letter
that the suspensive condition - issuance of industrial
clearance - has already been fulfilled and that the
lease contract has become operative. Otherwise,
petitioner did not have to solicit the conformity of
the private respondents to the termination of the
contract for the simple reason that no juridical
relation was created because of the non-fulfillment
of the condition.
2. Petitioner invokes Article 1266 and the
principle of rebus sic stantibus. Whether or not
petitioner should be released from the obligatory
force of the contract of lease because the
purpose of the contract did not materialize due to
unforeseen events and causes beyond its
control, i.e., due to abrupt change in political
climate after the EDSA Revolution and financial
difficulties. --- Although the contract has the force
of law between the parties, Art.1266 is an exception
which reads: "The debtor in obligations to do shall
also be released when the prestation becomes
legally or physically impossible without the fault of
the obligor." However, the provision contemplates
an obligation ‘to do’ and not an obligation ‘to
give’. 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 petitioner are not the
legal or physical impossibilities contemplated in said
article. Besides, petitioner 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. This theory is said to
be the basis of Article 1267 of the Civil Code, which
provides:
ART. 1267. 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 ofrebus 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.
In this case, petitioner PNCC entered into the
contract of lease with private respondents with
open eyes of the deteriorating conditions of the
country. Mere pecuniary inability to fulfill an
engagement does not discharge a contractual
obligation, nor does it constitute a defense to an
action for specific performance.
3. Whether or not P492,000 award representing
the two-year rent was excessive.--- The temporary
permit was valid for two years but was
automatically revoked because of its non-use
within one year from its issuance. The non-use of
the permit and the non-entry into the property
subject of the lease contract were both imputable
to petitioner and cannot, therefore, be taken
advantage of in order to evade or lessen
petitioner’s monetary obligation. The damage or
prejudice to private respondents is beyond
dispute. They unquestionably suffered pecuniary
losses because of their inability to use the leased
premises. Thus, in accordance with Article 1659 of
the Civil Code, they are entitled to indemnification
for damages; and the award of P492,000 is fair and
just under the circumstances of the case.
4. Whether or not petitioners were denied of
due process for not being heard.--- We
disagree. The trial court was in fact liberal in
granting several postponements to petitioner
before it deemed terminated and waived the
presentation of evidence in petitioner’s behalf.
VICTORINO MAGAT JR. VS COURT OF APPEALS AND
SANTIAGO GUERRERO|G.R. NO. 124221|AUGUST 4,
2000
Concept:
Article 1267. 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.
Facts:
Guerrero is the President and Chairman of the
“Guerrero Transport Services” (GTS), a single
proprietorship. IN 1972, the GTS won a bidding to
operate a fleet of taxicabs in Subic. As the highest
bidder, Guerrero was required to have four door,
four wheel, radio controlled, meter controlled and
sedans taxi services.
Guerrero and Magat, General Manager of the
Spectrum Electronic Laboratories, executed a
letter-contract for the purchase of transceivers at
$77,620.59 FOB, Yokohoma. Magat was to deliver
within the 60-90 days after receiving from the
Guerrero the assigned frequency. 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,
the then President Marcos issued the Letter of
Instructions (LOI) no. 1 which stated: “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.

On Sept. 25, 1972. Pursuant to the LOI, the Radio

Control Office issued Administrative Circular no. 4,
which stated: “SUSPENDING THE ACCEPTANCE AND
PROCESSING OF APPLICATIONS FOR RADIO STATION
CONSTRUCTION PERMITS AND FOR PERMITS TO OWN
AND/OR POSSESS RADIO TRANSMITTERS OR
TRANSCEIVERS”. said circular suspended the sale
and purchase of radio transmitters or transceivers.

The permit to import the transceivers was denied

because of the Martial Law

Guerrero was not able to obtain the necessary

letter of credit. He then did not continue with the
contract.

Issue: W/ON there is a breach of contract

Held:

No. The law provides that 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. Here in
the case, the denial of permit to import resulted the
non compliance of the obligation and the inability
to secure the letter of credit.