1.Rivera vs. del Rosario

Rivera:alleged buyer

del Rosario:owner

gr number 144934 january 15,2004

nature of the obligation: contract to sell

FACTS:

On May 19,1983 the del rosario children executed a Special Power of Attorney(SPA) in favor of their mother Fidela.

Fidela borrowed 250thou from Mariano Rivera in the early part of 1987 as security she agreed to execute a mortgage and an agreement to sell the land.

On March 9,1987, Mariano went to his lawyer Atty. Barangan to have three(3) documents drafted: Deed of Real Estate MOrtageg, Kasunduan, (Agreement to Sell), Deed of Absolute Sale.

The Kasunduan provided that the children of Mariano Rivera would purchase LOT no.1083-C for a consideration of P2,141,622.50. Purchase price was to be paid in three(3)installments: 250,000 upon signing of the KAsunduan, 750,000 on August 31,1987: 1,141,622.50 on December 31,1987. The Deed of Absolute Sale would be executed only after the second installment is paid and a post dated check for the last installment is deposited with Fidela. The said deed stipulated a purchase price of 601,160. and covered a certain LOT no.1083-A in addition to LOT no 1083-C. The said deed and kasunduan was signed by Mariano's children on March 9,1987.

Fidela intended to sign tha deed and the kasuduan however she inadvertently fixed her signature on the DEED of Absolute Sale.(March 10,1987). Mariano then gave Fidela 250,000. On October 30,1987 he also gave a check for 200,000. Mariano gave Oscar several amounts totaling to 67,800.While Making payments Fidela entrusted the owners copy of TCT no.T-50.668(M) to Mariano to guarantee compliance with the KASUNDUAN.

On Sept. 7,1992 Carlos del Rosario caused the annotation on TCT no. T-50.668(M). On October 13, 1992 Mariano registered the Deed of Absolute Sale caused the Annotation of an Affidavit of Recovery of Title on October 14, 1992 thus, TCT no. T-50.668 was cancelled and its place was issued TCT no.158443 in the name of mariano's children.

The Rivera's representing themselves as the new owner of lot no. 1083-C was negotiating with the tenant Feliciano Nieto to rid the land of the latter's tenurial right.

On February 18, 1993 respondents filed a complaint in the RTC of Malolos, Bulacan asking that the KASUNDUAN be rescinded for failure of the Rivera to comply with its conditions with damages.

Respondents claimed that Fidela never intended to enter into a DEED at the timr of its execution and that she signed said deed on the mistaken belief that she was merely signing the KASUNDUAN.

ISSSUE:

Whether or not the respondents cause of action is barred by the prescription?

HELD:

Article 1383, 1389 and 1391 of the New Civil Code. They submit the complaint for rescission of the KASUNDUAN should have been dismissed for respondents failure to prove that there was no other legal means available to obtain reparation other than to file a case for rescission, as required by Article 1383.

Article 1383 of the New Civil Code applies only to rescissible contracts enumerated undr Article 1381 of the same code, while the cause of action had not prescribed beacuse of the 4 year prescriptive period is counted from the date of discovery of the fraud, which, in this cae, was only in 1992.

Rescission of reciprocal obligations under Article 1191 of the New Civil Code should be distinguished from RESCISSION OF CONTRACTS under Article 1383 of the same code. Both presuppose contracts validly entered into as well as subsisting and both require mutual restitution when proper, neverthelesss they are not entirely identical

Rescission under Art 1191 and 1381 of the Civil code: based on RESOLUTION: is a principal action that is based on breach of a party.

Rescission in Article 1383 is a subsidiary action limited to cases of rescission for lesion under Art 1381.

The KASUNDUAN reveals that it is in the nature of a CONTRACT to SELL, as distinguished from a CONTRACT OF SALE:

CONTRACT TO SELL: ownershio is by agreement, reserved in the vendor and is ot to pass to the vendee until full payment of the purchase price. :payment of the purchase price is a positive suspensive condition, the failure of which is not a breach, casual or serious, but a situation that prevents the obligation of the vendor to convey title from acquiring an obligatory force.

CONTRACT OF SALE: the title of the property passes to the vendee upon the delivery of the sold thing.

Prescription has not yet set in. Article 1391 states that the action for annulment is void contracts shall be brought within four years. This period shall begin from the time the fraud or mistake is discovered.

Hence the respondents are not yet barred by prescription.

2.PCIB vs CA, ATLAS consolidated mining

gr 121989 january 31,2006

nature of the obligation: joint obligation

PCIB and MBC:joint bidders 1 million worth of equipment

Atlas Mining Incorporated: buyer of the equipments from PCIB and MBC

Facts:

PCIB and MBC are joint buyers of the equipment from Phil Iron Mines(PIM). After four(4) years Atlas Inc. agreed to purchase some of the equipments owned jointly at that time by PCIB and MBC it was evidenced by a DEED of Sale dated February 8,1979, with the parties agreeing for intial payment of 12 million and the balance of 18 million will be payable with a 6 months installments.

NAMAWU won the case against PCIB and was entitled to a 4,298,307.77 as payment for damages.

As agreed upon Atlas paid the first installment of 12 million as downpayment to PCIB and MBC.

On March 7, 1979 PCIB and MBC with a letter or agreement bearing the conformity of Atlas the final purhase price was adjusted to 29,630,000. The Following day PCIB and MBC sent a letter to Atlas informing that the remaining balance be paid with the following portions: PCIB:63.15% and MBC: 36.84% respectively.

On April 18,1979:Atlas paid NAMAWU the amount of 4,298,307.77 as payment made in compliance with the writ of garnishment issued on the same date against Atlas to satisfy the final judgment in favor of NAMAWU and against PIM.

Atlas, aside from the 12 million as downpayment and 13,696,693.22 as total amount of the installments paid. PCIB should aslo credit the 4,298,307.77 payment by Atlas to NAMAWU as to settle the writ of garnishment issued by the court.

On the other hand PCIB contested that a partial payment was already made to NAMAWU in the amount of 601,260 thus making the liability against NAMAWU only 3,697,047.77.

ISSUE:

Whether or not Atlas is entitled to reimbursement from PCIB in the amount of 4,298,307.77?

Ruling:

The court ruled in the negative. Stating that the payment made by Atlas to NAMAWU

was without the consent of the debtor (PCIB).

Article 1236 of the Civil Code applies in this instance.

"whoever pays for another may demand from the debtor what he has paid except that if he paid without the knowledge or against the will of the debtor, he can recover only insofar as the payment has been beneficial to the debtor."

PCIB is the debtor in this case, having purchased along with MBC legally garnished properties, while Atlas is the third person who paid the obligation of the debtor without the knowledge and consent. Since Atlas paid NAMAWU without the knowledge and consent of PCIB. Atlas may only recover from PCIB more precisly charge to PCIB, only the amount of payment which has benefited PCIB. Which is only 3,697,047.77.

3.AGUILAR VS CITY TRUST FINANCE

GR NO: 159592 October 25, 2005

Nature of the Obligation: Conditional Obligation

Facts:

Josephine Aguilar bought a car from World Cars, Incorporated with the agreed price of 370,000 pesos and a term for 90 days. Upon the delivery of the car by agents of World Cars, Inc. namely: Joselito Perez and Vangie Tayag asked Josephine Aguilar to sign the following documents which at that time were blank: a promissory note, chattel mortgage, disclosures and other documents which showed that they would still be obliged to pay on installment in 12 months for the car (deed of assignment to citytrust) even if checks in full payment thereof in 90 days were to be issued. When Aguilar asked what the documents for she was informed that it was ony for formality, for incase the checks were not cleared, the documents would take effect.

Aguilar draw a total of five(5) checks in favor of Joselito Perez and World Cars. There was no official receipt issued by Perez to Josephine for the last check that was issued.

September/ Decemeber 1992 Aguilar received a letter from Citytrust informing her of her account in connection with the purchase of the car.

ISSUE:

Whether or not Aguilar is indebted to CITYTRUST?

RULING:

The court ruled in the negative: Stating that the check payments made by Aguilar were all under

Perez name it will constitute as payment to World Cars. The promissory note, chattel mortgage and other accessory documents they executed which were to take effect only in the event the checks would be dishonored were deemed nullified, all the checks having been cleared.

Since the condition for the instruments to become effective was fulfilled, the obligation on the part of the Aguilars to be bound thereby did not arise and World Cars did not acquire rights.

Article 1181: In conditional obligations, the acquisition of rights as well as the extinguishment or loss of those already acquired shall depend upon the happening of the event which constitutes the condition.

As no rights was acquired by World Cars against the Aguilars under the promissory note and chattel mortgage, it had nothing to assign to CITYTRUST.

Thus, the Aguilars are not indebted to CITYTRUST.

4.Florentino vs supervalue

gr no: 172384 september 12, 2007

nature of the obligation: Contracts with Penal Clause /contract of lease

Facts:

Florentino is a lessee of Supervalue which is a set of stores operating in the country. Florentino is the owner of Empanada royale a foodcart business entered into a contract of lease with Supervalue. The contract was good for 4 months and after the end of the contract both the lessee and the lessor have the option to either renew or terminate the contract. Florentino and Supervalue was able to renew the contract several times that it even lasted for a year. However, Supervalue terminated the contract with Florentino for the following violations: failure to open on two separate occassions; closing earlier time;introducing a new variety of empanada with out the approval of Supervalue. The store management then ordered the foreclosure of the space and along with it were the personal belongings of the petitioner. Florentino demanded for the return of her personal belongings and of the security bond that she have given Supervalue.

Issue:

whether or not florentino can claim for reimbursement on the improvements that she have made?

whether or not Florentino is entitled to claim for the security bond that she have posted?

Ruling:

Florentino is no longer entitled for reimbursment on the improvements that she have done on her stall:

Article 1678: If the lessee makes in good faith, useful improvements which are suitable to the use for which the lease is intended, without altering the form or substance of the property leased,the lessor upon the termination of the lease shall pay the lessee one-half of the of the improvements at that time. Should the lessor refused to reimburse said amount the lessee may remove the improvements, even though the principal thing may suffer damages thereby. He shall not, however, cause any more impairment upon the property leased than is necessary."

As stated in Geminiano vs CA: "Being mere lessees, the private respondents knew that their occupation of the premises would continue only for the life of the lease. Plainly, they cannot be considered as possessors nor builders in good faith"

On the second issue raised in this case: Florentino is entitled to half of the security deposits made with Supervalue because it would unconscionable for Florentino to be imposed such penalty. Obligations with Penal clause:

Article 1226: In obligations with penal clause, the penalty shall substitute the indemnity for damages and the payment of interests in case of noncompliance, if there is no stipulation to the contrary. Neveretheless, damages shall be paid if the obligor refuses to pay the penalty or is guilty of fraud in the fulfillment of the obligation.

The penalty may be enfroced only when it is demandable in accordance with the provisions of this CODE.

As a rule the courts are not in the liberty to ignore the freedoms of the parties to agree on such terms and conditions.The courts may equitably reduce a stipulated penalty in the contracts in two instances:

1. if the principal obligation has been partly or ireegularly complied with;

2. If there has been no compliance if the penalty is iniquitous or unconscionable in accordance with Article 1229:

Article 1229: The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable.

5.Gonzales vs Lim

gr no. 130403 july 30, 2007

nature of the obligation: conditiona sale

Facts:

Francisco Gonzales owner of Motown Vehicles was the licensed distributor of FORD vehicles in the country. Its assets include two buildigs standing on a lot leased from Tanglaw Realty INc.

In 1998, when Ford Phils ceased operations, the Gonzales sold Motown shares of stocks to Severino Lim and Toyota Shaw Inc. which was then putting up a Toyota car dealership.The Agreement signed by the parties stated that the sale included Motown's two lease contracts with Tanglaw.It read:

" whereas, motown, which owns these fixed and moveable improvements and equipments...does not own the land on which these improvements and equipments are located, but merely leases the bare land...from Tanglaw Realty Corp. under 2 lease contracts both dated June 17, 1978 both commencing Nov 15, 1977 and Expiring Nov.14,2002."

Along with the lease contracts is the terms of payments by the two parties:

1.6,246,000: upon signing the contract;

2.500,000: upon receipt of the official communication from Tanglaw Realty.

After paying the initial installment to the Gonzaleses, Mr.Lim claimed that one of Motowns lease contracts had already been terminated prior to the sale. On trial, Mr. Lim accused the Gonzaleses of falsely representing to them that the latters two lease contracts were still subsisting at the time of the sale.

ISSUE:

Whether or not Gonzales in entitled to the payment of 500,000 despite failure to comply with the provision in the Agreement.

HELD:

The "Agreement" may be deemed a "condition", a future an uncertain event upon which the existence of an obligation is made to depend or that which subordinates the existence of a liability under a contract to a certain future event. It was a condition that was imposed on an obligation after the consummation of the contract of sale, not a condition on the perfection of the contract itself.

Article 1545: Where the obligation of either party to a contract of sale is subject to any condition which is not performed, such party may refuse to proceed with the contract or he may waive performance of the condition. If the other party has promised that the condition should happen or be performed, such first mentioned party may also treat the non performance of the condition as a breach or warranty.

In the case of Romero vs CA, the court declared that if the condition was imposed on an obligation of party which was not complied with, the other party may either; 1. refuse to proceed with the agreement or 2. waive the fulfillment of the condition.

Mr.Lim obviously did not choose the first option as they proceeded with their contract with Gonzales despite the non fulfillment of the condition in the agreement.

6.Molino vs Security Diners

gr 136780 August 2001

nature of obligation:suretyship

FACTS:

On July 1987 Danilo Alto applied for a regular (local)card with SDIC. He got as his surety his own sister-un-law Jeanette Molino Alto. Thus, Danilo signed the printed application and Jeanette Molino signed the Surety Understanding attached to the Application Form was an agreement (use of Diners Card).

On the basis of the completed and signed Application Form and the Surety Undertaking, the SDIC issued to Danilo (Diners Card) . The latter used this card and initially paid his obligations to SDIC. On February 8, 1998, Danilo wrote SDIC a letter requesting it to upgrade his Regular (local) Diners Club Card to a Diamond Edition one. As a requirement of SDIC, Danilo secured from Jeanette her approval. The latter obliged and so on March 2, 1998, she signed a note which states.

" This certifies that I Jeanette D. Molino, approve of the request of Danilo and Gloria Alto to upgrade their card from regular to diamond edition."

On October 1, 1988 Danilo had incurred credit charged plus appropriate interest and service charges in the aggregate amount of P 166,408.31. He dafaulted in the payment of this obligation.

On November 9, 1988, SDIC filed an action to collect said indebtedness against Danilo and Jeanette. Defendant Danilo failed to file an answer. Petitioner was left as the lone defendant, sued in her capacity as surety of Danilo.

ISSUE:

Whether or not Jeanette Molino incurred liability as surety of Danilo?"

HELD:

NOVATION, as a mode of extinguishing obligations, may be done in two ways: by explicit declaration, or by material incompatibility ( implied novation).

There was no doubt that the upgrading was a novation of the original agreement covering the first credit card issued to Danilo, basically since it was committed with the intent of cancelling and replacing the said card. However the novation did not serve to release the petitioner from her surety obligations because in the Surety Undertaking she expressly waived discharge in case of change or novation in the agreement governing the use of the first card.

Article 1370:" If the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control"

The Surety Undertaking expressly provides that petitioners liability is solidary. A surety is considered in law as being the same party as the debtor in relation to whatever is adjudged touching the obligation of the latter, and their liabilities are interwoven as to be inseparable. Although the contract of surety is in essence secondary only to a valid principal obligation, his liability to the creditor is direct, primary, and absolute; he becomes liable for the debt and duty to another although he possesses no direct or personal interest over the obligations nor does he receive any benefit therefrom.

Respondent was certainly within its rights to proceed singly against petitioner, as surety and solidary debtor, withour prejudice to any action it may later file against Danilo, unitl the obligation is fully satisfied. Provided under Article 1216:

Article 1216: " The creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. The demand made against one of them shall not be an obstacle to those which may be subsequentky directed against the others, so long as the debt has not been fully collected."

It is also evident that the liability sheincurred is only the legitmate consequence of an undertaking that she freely and intelligently obliged to.

7. Filinvest Land vc CA

Gr no 138980 Sept 20,2005

Petitioner: Filinvest Land

Respondent: CA, Pacific Equipment Corp

Nature of the Obligation: Obligation with Penal Clause

Facts:

On April 26,1978 Filinvest engaged in the development and sale of residential subdivisions, awarded to Pacific Equipment the development of its residential subdivisions consisiting of two (2) parcels of land. The terms and conditions of which are contained in an Agreement. To guarantee its faithful compliance and pursuant to the agreement, Pacific posted two (2) Surety Bonds in favor of Filinvest which were issued by defendant Philippine American General Insurance.

After three extensions granted by Filinvest to Pacific the latter failed to finish the contracted works. On October 16, 1979 Filinvest wrote Pacific advising the latter of its intention to take over the project and to hold said defendant liable for all damages which it had incurred and will incur to finish the project.

ISSUE:

Whether or not Pacific Corp is liable for the penalty for the delay they have incurred when it did not finish the project on the date agreed upon.

HELD:

Filinvest argues that the penalty in its entirety should be respected as it was a porduct of mutual agreement and it represents only 32% of the 12,470,000 contract price. The penalty was fixed to provide for actual or anticipated liquidated damages and not simply to ensure compliance with the terms of the contract.

The penalty of 15,000 per day of delay was mutually agreed upon by the parties and that the same is sanctioned by law. A penal clause is an accessory undertaking to assume greater liability in case of breach. It is attached to the obligatio in order to insure performance and has a double function:

1. to provide for liquidated damages

2. strengthen the coercive force of the obligation by the threat of greater responsibility in the event of breach.

Article 1226: In obligations with a penal clause, the penalty shall substitute the indemnity for damages and the payment of interests in case of noncompliance, if there is no stipulation to the contrary. Nevertheless, damages shall be paid if the obligor refuses to pay the penalty or is guilty of fraud in the fulfillment of the obligation.

The penalty may be enforced only when it is demandable in accordance with the provisions of this Code.

As a general rule, Courts are not at liberty to ignore the freedom of the parties to agree on such terms and conditions, as they see it as long as they are not ocntrary o law, morals, good customs, public

order or public policy. Nevertheless, courts may equitably reduce a stipulated penalty in the contract in two instances;

1. If the principal obligation has been partly or irregularly complied;

2. Even if there has been no compliance if the panalty is iniquitous or unconscionable in accordance with Article 1229:

Article 1229: The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable.

Unfortunately for Filinvest, the above-quoted doctrine is inapplicable to herein case.That a distinction between a penalty clause imposed essentially as a penalty in case of breach and a penalty clause imposed as indemnity for damages should be made in cases where there has been neither partial nor irregular compliance with the terms of the contract. In cases where there has been partial or irregular complaince, there will be no substantial difference between a penalty and liquidated damages insofar as legal results are concerned.

Article 2226: Liquidated damages are those agreed upon by the parties to a contract to be paid in case of breach thereof.

Article 2227: Liquidated damages, whether intended as an indemnity or a penalty, shall be equitably reduced if they are iniquitous or unconscionable.

In the case herein there has been substantial compliance in good faith on the part of Pacific which renders unconscionable the application of the full force of the penalty. Nothing in the records suggests that Pacific's delat in the performance of 5.47% of the contract was due to it having acted neligently or in bad faith.

Thus, Pacific is not liable for the penalty for the delay in the project.

8.SWAGMAN HOTELS vs CA AND NEAL CHRISTIAN

GR no 161135 April 8, 2005

petitioner: swagman hotels

respondent:neal christian, ca

Nature of Obligation:Novation

Facts:

In 1996 and 1997, Swagman Hotels, through Atty. Leonor Infante and Rodney Hegerty, its

president and vice president, respectively, obtained from Neal Christian loans evidenced by three (3) promissory notes dated august 7, 1996 march 14, 1997 and july 14, 1997. Each promissory notes is in amount of US$ 50,000 payable after three(3) years from its date with an interest of 15% per annum payable every three (3) months.

On December 1998, Christian informed the petitioner corp. that he was terminating the loans and demanded from the latter payment in the total amount of $150,000 plus unpaid interests in the total amount of $13,500.

On February 2, 1999 Christian filed a complaint for a sum of money and damages against the petitioner corporation, Hegerty and Atty Infante.According to Christian the petitioners paid an interest of 15% per annum every three(3) months in accordance with three(3) promissory notes. However, starting January 1998 until December 1998, they paid him only an interest of 6% per annum, instead of 15% per annum. In violation of the terms of three(3) promissory notes.

Swagman corporation, together with its president and vice president filed an answer raising as defenses lack of cause of action and novation of the principal obligations. Christian had no cause of actio because the three(3) promissory notes were not yet due and demandable. In December 1997, since Swagman was experiencing huge losses due to the Asian financial crisis, Christian agreed;

a. waive the interest of 15% per annum

b. accept payments of the principal loans in installment basis, the amount and period of which would depend on the state of business corporation.

Swagman paid Christian capital repayment in the amount of $750 per month from January 1998 to Feb 1999.

On May 2000, the RTC declaring the first two(2) promissory notes due and demandable and that the interest on the loans had been reduced by parties from 15% to 6% per annum.

ISSUE:

Whether or not there is a valid novation? May the original terms of contract which has been novated still prevail?

HELD:

The Court observes that Swagman argues the existence of a NOVATION based on its own version of what transpired during the renegotiation of the three(3) promissory notes in December 1997. By using its own version of facts.

The cash voucher dated January 1998 states that the payment of $750 represents "INVESTMENT PAYMENT". All succeeding cash vouchers describe the payments from Feb 1998 to Sept 1999 as

"CAPITAL REPAYMENT". All these cash vouchers served as receipts evidencing private respondent himslef and all the others were signed by Christian and all others wre signed by his representatives. Cognizant of these receipts, Christian applied these payments to the three(3) consolidated principal loans in the summary of payments.

Article 1253: If the debt produces interest, payment of the principal shall not be deemed to have been made untol the interest has been covered."

Christian would not have signed the receipts describing the payments made by the petitioner as "capital repayment" if the obligation to pay the interest was still subsistings. The receipts, as well as Christians summary of payments were for the principal loans and that the interests on the three(3) consolidated loans were waived by Christian during the undisputed renegotiation of the loans on the account of the business reverses suffered by the petitioner at the time.

There was therefore a NOVATION of the terms of the three (3) promissory notes in that the interest was waived and the principal was payable in monthly installments of $750. Alterations of the terms and conditions of the obligation would generally result only in MODIFICATORY NOVATION unless such terms and conditions are considered to be the essence of the obligation itself. The resulting NOVATION in this case was therefore, of the MODIFICATORY type, not the EXTINCTIVE type, since the obligation to pay a sum of money remains in force.

Thus, there was a valid NOVATION.

9. Carolyn Garcia vs Rica Marie Thio

gr number: 154878 March 16,2007

Nature of the obligation: Loans and Contracts

petitioner:Garcia

respondent: THIO

FACTS:

In February 1995 Rica Marie Thio received from petitioner Carolyn Garcia a crossed checked dated February 24, 1995 in the amount of $100,000 payable to the order of a certain Marilou Santiago. The amount Garcia received from Thio every month on March 24, April 26, June 26 and July 26 all in 1995. The amount of $3,000 and P76,500 on July 26, Aug 26, Sept 26 and October 26, 1995.

In June 1995, Thio received from petitioner another crossed check dated June 29,1995 in the maount of P500,000 also payable to the order of Marilou Santiago. Garcia received from Thio the amounth of P 20,000 every month on August 5, Sept 5, Oct 5 and Nov 1995.

On February 24,1995 Thio borrowed from her the amount of $100,000 with interest thereon at

the rate of 3% per month, which loan would mature on October 26,1995. The amount of this loan was covered by the second check. For both loans no promissory note was executed since Garcia and Thio were close friends at the time. Thio paid the stipulated monthly interests for both loans but on their maturity dates, she failed to pay the principal amounts despite repeated demands.

ISSUE:

Whether or not there was a valid contract of loan between Garcia and Thio?

HELD:

A loan is a real contract, not consensual, and is perfected only upon the delivery of the object of the contract. Evident in Article 1934:

Article 1934: " An accepted promise to deliver something by way of commodatum or simpe loan is binding upon the parties, but the commodatum or simple loan itself shall not be perfected until the delivery of the object of the contract.

Delivery is the act by which the res or substance thereof is placed within the actual or constructive possession or control of another. Although Thio did not physically receive the proceeds of the checks, these instruments were placed in her control and possession under an arrangement whereby she actually re-lent the amounts to Santiago.

There is no valid 3% and 4% monthly interest for the $100,000 and P500,000 loans respectively. There was no written proof of the interest payable except for the verbal agreement that the loans would earn 3% and 4% interest respectively. Article 1956 provides that no interest shall be due unless it has been expressly stipulated in writing.

While there can be no interest, there can legal interest pursuant to Article 2209:

Article 2209:" When the obligation is breached, and it consists in the payment of a sum of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default.

Thio is liable for the payment of legal interest per annum to be computed from November 21, 1995, the date when she received petitioner's demand letter. The amount due shall earn interest at 12% per annum, the interim period being deemed equivalent to a forbearance of credit.

10.Far East Bank vs Diaz Realty,Inc

Gr no. 138588 August 23, 2001

Petitioner: Far East Bank

Respondent:Diaz Realty Inc

Nature of the Obligation:Tender of Payment

Facts;

In August 1973, Diaz Realty got a loan form Pacific Banking Corp in the amount of 720,000 the interest at 12% per annum, later increased to 14% , 16%, 18% and 29%. The loan was secured by a real estate mortgage over two(2) parcels of land owned by the Diaz Realty, both located in Davao City.

In 1981, Allied Banking Corp rented an office space in the building constructed on the said properties owned by the mortgage contract, whereby the parties agreed that the monthly rentals shall be paid directly to Pacific Bank for the lessors accoubt either to partly or fully pay off the aforesaid mortgage indebtedness

On July 1985, the Central Bank closed Pacific Banking Corporation, placed it under the receivership and appointed Renan Santos as its liquidator. December 1986, FEBTC purchased the credit of Diaz Realty in favor of PaBC but it was only on March 23,1988 that Diaz wa informed.

On March 1988 Diaz went to the office of PaBC and was informed that it was acquired by FEBTC and was informed that his loan is P 1, 447,142 million. Diaz tendered the amount of P 1,450,000 through Interbank Check in order to prevent the imposition of additional interest. That FEBTC did not accept it as payment and was asked to deposit the amount with the defendant's Davao City Branch office allegedly pending the approval of Central Bank liquidator Renan Santos.

ISSUE:

Whether or not their was a valid tender of payment made by Diaz Realty to FEBTC?

HELD:

The Court finds that their was a valid tender of payment made by Diaz Realty to FEBTC.

In general, a check does not constitute legal tender and that the creditor may validly refuse it. It must be emphasized, however, that this dictum does not prevent a creditor from accepting a checking as payment. In other words, the crditor has the option and discretion of refusing or acpting it.

In the present case, FEBTC did not refuse Diaz's check. On the contrary it accepted the check which, it insisted, was a deposit. The check proved to be fully funded and was in fact honored by the drawee bank. FEBTC was in possession of the money for several months.

"Tender of payment is the definitive act of offering the creditor what is due to him or her, together with the demand that the creditor accept the same. More importantly, there must be a fusion of intent, ability and capability to make good such offer, which must be absolute and must cover the amount due.

Diaz intended to settle its obligation with FEBTC is evident from the records of the case. Upon

knowing of the loan balance was 1,447,142.03 it presented to FEBTC a check in the amount of P 1,450,000 with the specific notification that it was for full payment.

Tender of Payment extinguishes the obligation only after proper consignation. For a consignation to be necessary, the creditor must have refused, without just cause, to accept the debtor's payment. However, petitioner accepted Diaz check.

The tender was made by Diaz for the purpose of settling its obligation. It was incumbent upon FEBTC to refuse, or accept it as payment. The latter, did not have the right or the option to accept and treat it as a deposit. By accepting the tendered check and conevrting it into money, FEBTC is presumed to have accepted it as payment. To hold otherwise would be inequitable and unfair to DIAZ.

11.