1252 APPLICATION OF PAYMENTS

PREMIERE DEVELOPMENT BANK, Petitioner,

vs.
CENTRAL SURETY & INSURANCE COMPANY, INC., Respondent.
DECISION
NACHURA, J.:
Before us is a petition for review on certiorari assailing the Court of Appeals (CA) Decision 1 in
CA-G.R. CV No. 85930, which reversed and set aside the decision of the Regional Trial Court
(RTC), Branch 132, Makati City in Civil Case No. 0051306.2
On August 20, 1999, respondent Central Surety & Insurance Company (Central Surety)
obtained an industrial loan of P6,000,000.00 from petitioner Premiere Development Bank
(Premiere Bank) with a maturity date of August 14, 2000. This P6,000,000.00 loan, evidenced
by Promissory Note (PN) No. 714-Y (6M),3 stipulates payment of 17% interest per annum
payable monthly in arrears and the principal payable on due date. In addition, PN No. 714-Y
(6M) provides for a penalty charge of 24% interest per annum based on the unpaid
amortization/installment or the entire unpaid balance of the loan. In all, should Central Surety fail
to pay, it would be liable to Premiere Bank for: (1) unpaid interest up to maturity date; (2) unpaid
penalties up to maturity date; and (3) unpaid balance of the principal.
To secure payment of the P6,000,000.00 loan, Central Surety executed in favor of Premiere
Bank a Deed of Assignment with Pledge4 covering Central Suretys Membership Fee Certificate
No. 217 representing its proprietary share in Wack Wack Golf and Country Club Incorporated
(Wack Wack Membership). In both PN No. 714-Y (6M) and Deed of Assignment, Constancio T.
Castaeda, Jr. and Engracio T. Castaeda, president and vice-president of Central Surety,
respectively, represented Central Surety and solidarily bound themselves to the payment of the
obligation.
Parenthetically, Central Surety had another commercial loan with Premiere Bank in the amount
of P40,898,000.00 maturing on October 10, 2001. This loan was, likewise, evidenced by a PN
numbered 376-X (40.8M)5 and secured by a real estate mortgage over Condominium Certificate
of Title No. 8804, Makati City. PN No. 376-X (40.8M) was availed of through a renewal of
Central Suretys prior loan, then covered by PN No. 367-Z (prior loan, connected to the
40.8M).6 As with the P6,000,000.00 loan and the constituted pledge over the Wack Wack
Membership, the P40,898,000.00 loan with real estate mortgage was transacted by Constancio
and Engracio Castaeda on behalf of Central Surety.
It appears that on August 22, 2000, Premiere Bank sent a letter to Central Surety demanding
payment of theP6,000,000.00 loan, to wit:
August 22, 2000
CENTRAL SURETY AND INSURANCE CO.
2nd Floor Universalre Bldg.
No. 106 Paseo de Roxas, Legaspi Village
Makati City
Attention: Mr. Constancio T. Castaneda, Jr.
President
Mr. Engracio T. Castaneda
Vice President
------------------------------------------------Gentlemen:

This has reference to your overdue loan of P6.0 Million.

We regret to inform you that despite efforts to restructure the same, you have failed up to this time,
to submit the required documents and come up with equity necessary to implement the restructuring
scheme.
In view thereof, we regret that unless the above loan is settled on or before five (5) days from the
date hereof, we shall exercise our option to have the Stock Certificate No. 217 with Serial No. 1793
duly issued by Wack Wack Golf and Country Club, Inc. transferred in the name of Premiere
Development Bank in accordance with the terms and conditions of the Deed of Assignment with
Pledge executed in favor of Premiere Development Bank.
We shall appreciate your prompt compliance.
Very truly yours,
(sgd.)
IGNACIO R. NEBRIDA, JR.
Senior Asst. Vice President/
Business Development Group - Head7
Posthaste, Central Surety responded and sent the following letter dated August 24, 2000:
24 August 2000
Mr. Ignacio R. Nebrida, Jr.
Senior Asst. Vice President/
Business Development Group Head
Premiere Bank
EDSA cor. Magallanes Avenue
Makati City
Sir:
With reference to this 6.0 Million loan account, we have informed Ms. Evangeline Veloira that we are
intending to settle the account by the end of September. As of 14 August 2000 we made payment to
your bank as per receipt attached.
As you may know, present conditions have been difficult for the insurance industry whose
performance is so closely linked to the nations economic prosperity; and we are now asking for
some consideration and leeway on your very stiff and immediate demands.
Kindly extend to us your favorable approval.
Very truly yours,
(sgd.)
ENGRACIO T. CASTANEDA
Vice-President8
Accordingly, by September 20, 2000, Central Surety issued Bank of Commerce (BC) Check No.
081149 dated September 22, 2000 in the amount of P6,000,000.00 and payable to Premiere
Bank. The check was received by Premiere Banks Senior Account Manager, Evangeline
Veloira, with the notation "full payment of loan-Wack Wack," as reflected in Central Suretys
Disbursement Voucher.10 However, for undisclosed reasons, Premiere Bank returned BC Check
No. 08114 to Central Surety, and in its letter dated September 28, 2000, demanded from the
latter, not just payment of the P6,000,000.00 loan, but also the P40,898,000.00 loan which was
originally covered by PN No. 367-Z (prior loan, connected to the 40.8M).11 In the same letter,
Premiere Bank threatened foreclosure of the loans respective securities, the pledge and real
estate mortgage, should Central Surety fail to pay these within ten days from date, thus:
28 September 2000
CENTRAL SURETY & INSURANCE CO.
By: Constancio T. Castaeda Jr. President
Engracio T. Castaeda Vice President

2nd Floor Universalre Bldg. No. 106

Paseo de Roxas, Legaspi Village, Makati City
RE: YOUR COMMERCIAL LOAN OF P40,898,000.00 &
P6,000,000.00 WITH PREMIERE DEVELOPMENT BANK
UNDER ACCOUNT NOS. COM-367-Z (prior loan, connected to the 40.8M) AND COM 714-Y (6M)
**************************************************
Dear Sirs:
We write on behalf of our client, Premiere Development Bank, in connection with your abovecaptioned loan account.
While our client has given you all the concessions, facilities and opportunities to service your loans,
we regret to inform you that you have failed to settle the same despite their past due status.
In view of the foregoing and to protect the interest of our client, please be advised that unless the
outstanding balances of your loan accounts as of date plus interest, penalties and other fees and
charges are paid in full or necessary arrangements acceptable to our client is made by you within
ten (10) days from date hereof, we shall be constrained much to our regret, to file foreclosure
proceedings against the collateral of the loan mortgaged to the Bank or pursue such action
necessary in the premises.
We trust, therefore, that you will give this matter your preferential attention.
Very truly yours,
(sgd.)
PACITA M. ARAOS12
(italics supplied)
The very next day, on September 29, 2000, Central Surety, through its counsel, wrote Premiere
Bank and re-tendered payment of the check:
29 September 2000
PREMIERE BANK
EDSA cor. Magallanes Avenue
Makati City
Attention: Mr. Ignacio R. Nebrida, Jr.
Senior Asst. Vice President/
Business Development Group Head
Re : Promissory Note No. 714-Y (6M)
Sir:
This is further to our clients letter to you dated 24 August 2000, informing you that it would settle its
account by the end of September 2000.
Please be advised that on 20 September 2000 our client delivered to your bank BC cheque no.
08114 payable to Premiere Bank in the amount of SIX MILLION PESOS (P6,000,000.00), which was
received by your Senior Account Manager, Ms. Evangeline Veloira. However, for unexplained
reasons the cheque was returned to us.
We are again tendering to you the said cheque of SIX MILLION PESOS (P6,000,000.00), in
payment of PN#714-Y (6M). Please accept the cheque and issue the corresponding receipt thereof.
Should you again refuse to accept this cheque, then I shall advise my client to deposit it in court for
proper disposition.
Thank you.
Very truly yours,
(sgd.)
EPIFANIO E. CUA
Counsel for Central Surety & Insurance Company13
(italics supplied)

On even date, a separate letter with another BC Check No. 08115 in the amount
of P2,600,000.00 was also tendered to Premiere Bank as payment for the Spouses Engracio
and Lourdes Castaedas (Spouses Castaedas) personal loan covered by PN No. 717-X
(Castaedas personal loan) and secured by Manila Polo Club, Inc. membership shares.
On October 13, 2000, Premiere Bank responded and signified acceptance of Central Suretys
checks under the following application of payments:
13 October 2000
ATTY. EPIFANIO E. CUA
2/F Universalre Condominium
106 Paseo de Roxas
Legaspi Village, Makati City
Dear Atty. Cua:
Thank you for your two (2) letters both dated 29 September 2000 on behalf of your clients with the
enclosed check nos. 0008114 and 0008115 for the total of P8,600,000.00.
As previously relayed to your client, Premiere Bank cannot accept the two (2) checks as full
settlement of the obligation under Account Nos. PN #714-Y (6M) and PN # 717-X (Castaedas
personal loan), as the amount is insufficient.
In accordance with the terms and conditions of the Promissory Notes executed by your clients in
favor of Premiere Development Bank, we have applied the two (2) checks to the due obligations of
your clients as follows:
1) Account No.: COM 235-Z14 P1,044,939.45
2) Account No.: IND 717-X (Castaedas personal loan) P1,459,693.15
3) Account No.: COM 367-Z (prior loan, connected to the 40.8M) 15 P4,476,200.18
4) Account No.: COM 714-Y (6M) P1,619,187.22
TOTAL P8,600,000.00
We are enclosing Xerox copy each of four (4) official receipts covering the above payments. The
originals are with us which your clients or their duly authorized representative may pick-up anytime
during office hours.
We shall appreciate the settlement in full of the accounts of your client or necessary arrangements
for settlement thereof be made as soon as possible to put the accounts on up to-date status.
Thank you.
Very truly yours,
(sgd.)
MS. ELSA M. SAPAPO
Manager
Loans Accounting and
Control Department16
Significantly, the P8,600,000.00 check payments were not applied in full to Central
Suretys P6,000,000.00 loan under PN No. 714-Y (6M) and the Spouses Castaedas personal
loan of P2,600,000.00 under PN No. 717-X (Castaedas personal loan). Premiere Bank also
applied proceeds thereof to a commercial loan under PN No. 235-Z taken out by Casent Realty
and Development Corporation (Casent Realty),17 and to Central Suretys loan originally covered
by PN No. 367-Z (prior loan, connected to the 40.8M), renewed under PN No. 376-X (40.8M),
maturing on October 20, 2001.
Strongly objecting to Premiere Banks application of payments, Central Suretys counsel wrote
Premiere Bank and reiterated Central Suretys demand for the application of the check
payments to the loans covered by PN Nos. 714-X and 714-Y (6M). Additionally, Central Surety

asked that the Wack Wack Membership pledge, the security for theP6,000,000.00 loan, should
be released.
In the final exchange of correspondence, Premiere Bank, through its SAVP/Acting Head-LGC,
Atty. Pacita Araos, responded and refused to accede to Central Suretys demand. Premiere
Bank insisted that the PN covering theP6,000,000.00 loan granted Premiere Bank sole
discretion respecting: (1) debts to which payments should be applied in cases of several
obligations by an obligor and/or debtor; and (2) the initial application of payments to other costs,
advances, expenses, and past due interest stipulated thereunder.
As a result, Central Surety filed a complaint for damages and release of security collateral,
specifically praying that the court render judgment: (1) declaring Central Suretys P6,000,000.00
loan covered by PN No. 714-Y (6M) as fully paid; (2) ordering Premiere Bank to release to
Central Surety its membership certificate of shares in Wack Wack; (3) ordering Premiere Bank
to pay Central Surety compensatory and actual damages, exemplary damages, attorneys fees,
and expenses of litigation; and (4) directing Premiere Bank to pay the cost of suit.
On July 12, 2005, the RTC rendered a decision dismissing Central Suretys complaint and
ordering it to pay Premiere Bank P100,000.00 as attorneys fees. The RTC ruled that the
stipulation in the PN granting Premiere Bank sole discretion in the application of payments,
although it partook of a contract of adhesion, was valid. It disposed of the case, to wit:
Now that the issue as to the validity of the stipulation is settled, [Premiere Bank] was right in
contending that it had the right to apply [Central Suretys] payment to the most onerous
obligation or to the one it sees fit to be paid first from among the several obligations. The
application of the payment to the other two loans of Central Surety namely, account nos. COM
367-Z (prior loan, connected to the 40.8M) and IND 714-Y (6M) was within [Premiere Banks]
valid exercise of its right according the stipulation. However, [Premiere Bank] erred in applying
the payment to the loan of Casent Realty and to the personal obligation of Mr. Engracio
Castaeda despite their connection with one another. Therefore, [Premiere Bank] cannot apply
the payment tendered by Central Surety to the other two entities capriciously and expressly
violating the law and pertinent Central Bank rules and regulations. Hence, the application of the
payment to the loan of Casent Realty (Account No. COM 236-Z) and to the loan of Mr. Engracio
Castaeda (Account No. IND 717-X (Castaedas personal loan)) is void and must be annulled.
As to the issue of whether or not [Central Surety] is entitled to the release of Membership Fee
Certificate in the Wack Wack Golf and Country Club, considering now that [Central Surety]
cannot compel [Premiere Bank] to release the subject collateral.
With regard to the issue of damages and attorneys fees, the court finds no basis to grant
[Premiere Banks] prayer for moral and exemplary damages but deems it just and equitable to
award in its favor attorneys fees in the sum of Php 100,000.00.
WHEREFORE, judgment is hereby rendered dismissing the complaint and ordering [Central
Surety] to pay [Premiere Bank] Php 100,000.00 as attorneys fees.18 (emphasis supplied)
On appeal by Central Surety, the CA reversed and set aside the trial courts ruling. The
appellate court held that with Premiere Banks letter dated August 22, 2000 specifically
demanding payment of Central Suretys P6,000,000.00 loan, it was deemed to have waived the
stipulation in PN No. 714-Y (6M) granting it the right to solely determine application of
payments, and was, consequently, estopped from enforcing the same. In this regard, with the
holding of full settlement of Central Suretys P6,000,000.00 loan under PN No. 714-Y (6M), the
CA ordered the release of the Wack Wack Membership pledged to Premiere Bank.
Hence, this recourse by Premiere Bank positing the following issues:
WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED REVERSIBLE AND
PALPABLE ERROR WHEN IT APPLIED THE PRINCIPLE OF WAIVER AND ESTOPPEL IN THE
PRESENT CASE INSOFAR AS THE DEMAND LETTER SENT TO [CENTRAL SURETY] IS
lawphil.net

CONCERNED NULLIFYING THE APPLICATION OF PAYMENTS EXERCISED BY [PREMIERE

BANK]
WHETHER OR NOT THE FINDING OF WAIVER AND ESTOPPEL BY THE HONORABLE COURT
OF APPEALS COULD PREVAIL OVER THE CLEAR AND UNMISTAKABLE STATUTORY AND
CONTRACTUAL RIGHT OF [PREMIERE BANK] TO EXERCISE APPLICATION OF PAYMENT AS
WARRANTED BY THE PROMISSORY NOTE
EVEN ASSUMING EX GRATIA THAT THE 6 MILLION SHOULD BE APPLIED TO THE SUBJECT
LOAN OF RESPONDENT, WHETHER OR NOT THE SUBJECT WACK-WACK SHARES COULD
BE RELEASE[D] DESPITE THE CROSS DEFAULT AND CROSS GUARANTEE PROVISIONS OF
THE DEED OF ASSIGNMENT WITH PLEDGE AND RELEVANT REAL ESTATE MORTGAGE
CONTRACTS EXECUTED BY [CENTRAL SURETY], CASENT REALTY AND SPS. CASTAEDA.
WHETHER OR NOT THERE IS A VALID TENDER OF PAYMENT AND CONSIGNATION OF THE
SUBJECT TWO CHECK PAYMENTS BY [CENTRAL SURETY].
WHETHER OR NOT, AS CORRECTLY FOUND BY THE COURT A QUO [CENTRAL SURETY] IS
ESTOPPED FROM CONTESTING THE STIPULATIONS OR PROVISIONS OF THE PROMISSORY
NOTES AUTHORIZING [PREMIERE BANK] TO MAKE SUCH APPLICATION OF PAYMENTS
WHETHER OR NOT AS CORRECTLY FOUND BY THE LOWER COURT [PREMIERE BANK] IS
ENTITLED TO AN AWARD OF DAMAGES AS OCCASIONED BY THE MALICIOUS FILING OF
THIS SUIT.19
At the outset, we qualify that this case deals only with the extinguishment of Central
Suretys P6,000,000.00 loan secured by the Wack Wack Membership pledge. We do not
dispose herein the matter of the P2,600,000.00 loan covered by PN No. 717-X (Castaedas
personal loan) subject of BC Check No. 08115.
We note that both lower courts were one in annulling Premiere Banks application of payments
to the loans of Casent Realty and the Spouses Castaeda under PN Nos. 235-Z and 717-X
(Castaedas personal loan), respectively, thus:
It bears stressing that the parties to PN No. 714-Y (6M) secured by Wack Wack
membership certificate are only Central Surety, as debtor and [Premiere Bank], as
creditor. Thus, when the questioned stipulation speaks of "several obligations", it only
refers to the obligations of [Central Surety] and nobody else.
[I]t is plain that [Central Surety] has only two loan obligations, namely: 1.) Account No.
714-Y (6M) secured by Wack Wack membership certificate; and 2.) Account No. 367-Z
(prior loan, connected to the 40.8M) secured by Condominium Certificate of Title. The
two loans are secured by separate and different collaterals. The collateral for Account
No. 714-Y (6M), which is the Wack Wack membership certificate answers only for that
account and nothing else. The collateral for Account No. 367-Z (prior loan, connected to
the 40.8M), which is the Condominium Certificate of Title, is answerable only for the said
account.
The fact that the loan obligations of [Central Surety] are secured by separate and distinct
collateral simply shows that each collateral secures only a particular loan obligation and
does not cover loans including future loans or advancements.
As regards the loan covered by Account No. 235-Z, this was obtained by Casent Realty,
not by [Central Surety]. Although Mr. Engracio Castaeda is the vice-president of
[Central Surety], and president of Casent Realty, it does not follow that the two
corporations are one and the same. Both are invested by law with a personality separate
and distinct from each other.
Thus, [Central Surety] cannot be held liable for the obligation of Casent Realty, absent
evidence showing that the latter is being used to defeat public convenience, justify
wrong, protect fraud or defend crime; or used as a shield to confuse the legitimate

issues, or when it is merely an adjunct, a business conduit or an alter ego of [Central

Surety] or of another corporation; or used as a cloak to cover for fraud or illegality, or to
work injustice, or where necessary to achieve equity or for the protection of creditors.
Likewise, [Central Surety] cannot be held accountable for the loan obligation of spouses
Castaeda under Account No. IND 717-X (Castaedas personal loan). Settled is the
rule that a corporation is invested by law with a personality separate and distinct from
those of the persons composing it. The corporate debt or credit is not the debt or credit
of the stockholder nor is the stockholders debt or credit that of the corporation.
The mere fact that a person is a president of the corporation does not render the
property he owns or possesses the property of the corporation, since that president, as
an individual, and the corporation are separate entities.20
In fact, Premiere Bank did not appeal or question the RTCs ruling specifically annulling the
application of theP6,000,000.00 check payment to the respective loans of Casent Realty and
the Spouses Castaeda. Undoubtedly, Premiere Bank cannot be allowed, through this petition,
to surreptitiously include the validity of its application of payments concerning the loans to
Casent Realty and the Spouses Castaeda.
Thus, we sift through the issues posited by Premiere Bank and restate the same, to wit:
1. Whether Premiere Bank waived its right of application of payments on the loans of Central
Surety.
2. In the alternative, whether the P6,000,000.00 loan of Central Surety was extinguished by
the encashment of BC Check No. 08114.
3. Corollarily, whether the release of the Wack Wack Membership pledge is in order.
The Petition is meritorious.
We shall take the first and the second issues in tandem.
Creditor given right to apply payments
At the hub of the controversy is the statutory provision on application of payments, specifically
Article 1252 of the Civil Code, viz.:
Article 1252. He who has various debts of the same kind in favor of one and the same creditor,
may declare at the time of making the payment, to which of them the same must be applied.
Unless the parties so stipulate, or when the application of payment is made by the party for
whose benefit the term has been constituted, application shall not be made as to debts which
are not yet due.
If the debtor accepts from the creditor a receipt in which an application of the payment is made,
the former cannot complain of the same, unless there is a cause for invalidating the contract.
The debtors right to apply payment is not mandatory. This is clear from the use of the word
"may" rather than the word "shall" in the provision which reads: "He who has various debts of
the same kind in favor of one and the same creditor, may declare at the time of making the
payment, to which of the same must be applied."
Indeed, the debtors right to apply payment has been considered merely directory, and not
mandatory,21 following this Courts earlier pronouncement that "the ordinary acceptation of the
terms may and shall may be resorted to as guides in ascertaining the mandatory or directory
character of statutory provisions."22
Article 1252 gives the right to the debtor to choose to which of several obligations to apply a
particular payment that he tenders to the creditor. But likewise granted in the same provision is
the right of the creditor to apply such payment in case the debtor fails to direct its application.
This is obvious in Art. 1252, par. 2, viz.: "If the debtor accepts from the creditor a receipt in
which an application of payment is made, the former cannot complain of the same." It is the

directory nature of this right and the subsidiary right of the creditor to apply payments when the
debtor does not elect to do so that make this right, like any other right, waivable.
Rights may be waived, unless the waiver is contrary to law, public order, public policy, morals or
good customs, or prejudicial to a third person with a right recognized by law.23
A debtor, in making a voluntary payment, may at the time of payment direct an application of it
to whatever account he chooses, unless he has assigned or waived that right. If the debtor does
not do so, the right passes to the creditor, who may make such application as he chooses. But if
neither party has exercised its option, the court will apply the payment according to the justice
and equity of the case, taking into consideration all its circumstances.24
Verily, the debtors right to apply payment can be waived and even granted to the creditor if the
debtor so agrees.25This was explained by former Senator Arturo M. Tolentino, an acknowledged
expert on the Civil Code, thus:
The following are some limitations on the right of the debtor to apply his payment:
xxxx
5) when there is an agreement as to the debts which are to be paid first, the debtor cannot vary
this agreement.26
Relevantly, in a Decision of the Supreme Court of Kansas in a case with parallel facts, it was
held that:
The debtor requested Planters apply the payments to the 1981 loan rather than to the 1978
loan. Planters refused. Planters notes it was expressly provided in the security agreement on
the 1981 loan that Planters had a legal right to direct application of payments in its sole
discretion. Appellees do not refute this. Hence, the debtors had no right by agreement to direct
the payments. This also precludes the application of the U.S. Rule, which applies only in
absence of a statute or specific agreement. Thus the trial court erred. Planters was entitled to
apply the Hi-Plains payments as it saw fit.27
In the case at bench, the records show that Premiere Bank and Central Surety entered into
several contracts of loan, securities by way of pledges, and suretyship agreements. In at least
two (2) promissory notes between the parties, Promissory Note No. 714-Y (6M) and Promissory
Note No. 376-X (40.8M), Central Surety expressly agreed to grant Premiere Bank the authority
to apply any and all of Central Suretys payments, thus:
In case I/We have several obligations with [Premiere Bank], I/We hereby empower [Premiere
Bank] to apply without notice and in any manner it sees fit, any or all of my/our deposits and
payments to any of my/our obligations whether due or not. Any such application of deposits or
payments shall be conclusive and binding upon us.
This proviso is representative of all the other Promissory Notes involved in this case. It is in the
exercise of this express authority under the Promissory Notes, and following Bangko Sentral ng
Pilipinas Regulations, that Premiere Bank applied payments made by Central Surety, as it
deemed fit, to the several debts of the latter.
All debts were due; There was no
waiver on the part of petitioner
Undoubtedly, at the time of conflict between the parties material to this case, Promissory Note
No. 714-Y (6M) dated August 20, 1999, in the amount of P6,000,000.00 and secured by the
pledge of the Wack Wack Membership, was past the due and demand stage. By its terms,
Premiere Bank was entitled to declare said Note and all sums payable thereunder immediately
due and payable, without need of "presentment, demand, protest or notice of any kind." The
subsequent demand made by Premiere Bank was, therefore, merely a superfluity, which cannot
be equated with a waiver of the right to demand payment of all the matured obligations of
Central Surety to Premiere Bank.

Moreover, this Court may take judicial notice that the standard practice in commercial
transactions to send demand letters has become part and parcel of every collection effort,
especially in light of the legal requirement that demand is a prerequisite before default may set
in, subject to certain well-known exceptions, including the situation where the law or the
obligations expressly declare it unnecessary.28
Neither can it be said that Premiere Bank waived its right to apply payments when it specifically
demanded payment of the P6,000,000.00 loan under Promissory Note No. 714-Y (6M). It is an
elementary rule that the existence of a waiver must be positively demonstrated since a waiver
by implication is not normally countenanced. The norm is that a waiver must not only be
voluntary, but must have been made knowingly, intelligently, and with sufficient awareness of the
relevant circumstances and likely consequences. There must be persuasive evidence to show
an actual intention to relinquish the right. Mere silence on the part of the holder of the right
should not be construed as a surrender thereof; the courts must indulge every reasonable
presumption against the existence and validity of such waiver.29
Besides, in this case, any inference of a waiver of Premiere Banks, as creditor, right to apply
payments is eschewed by the express provision of the Promissory Note that: "no failure on the
part of [Premiere Bank] to exercise, and no delay in exercising any right hereunder, shall
operate as a waiver thereof."
Thus, we find it unnecessary to rule on the applicability of the equitable principle of waiver that
the Court of Appeals ascribed to the demand made by Premiere Bank upon Central Surety to
pay the amount of P6,000,000.00, in the face of both the express provisions of the law and the
agreements entered into by the parties. After all, a diligent creditor should not needlessly be
interfered with in the prosecution of his legal remedies.30
When Central Surety directed the application of its payment to a specific debt, it knew it had
another debt with Premiere Bank, that covered by Promissory Note 367-Z (prior loan, connected
to the 40.8M), which had been renewed under Promissory Note 376-X (40.8M), in the amount
of P40.898 Million. Central Surety is aware that Promissory Note 367-Z (prior loan, connected to
the 40.8M) (or 376-X (40.8M)) contains the same provision as in Promissory Note No 714-Y
(6M) which grants the Premiere Bank authority to apply payments made by Central Surety, viz.:
In case I/We have several obligations with [Premiere Bank], I/We hereby empower [Premiere
Bank] to apply without notice and in any manner it sees fit, any or all of my/our deposits and
payments to any of my/our obligations whether due or not. Any such application of deposits or
payments shall be conclusive and binding upon us.31
Obviously, Central Surety is also cognizant that Promissory Note 367-Z (prior loan, connected to
the 40.8M) contains the proviso that:
the bank shall be entitled to declare this Note and all sums payable hereunder to be
immediately due and payable, without need of presentment, demand, protest or notice of nay
kind, all of which I/We hereby expressly waive, upon occurrence of any of the following events:
x x x (ii) My/Our failure to pay any amortization or installment due hereunder; (iii) My/Our failure
to pay money due under any other document or agreement evidencing obligations for borrowed
money x x x.32
by virtue of which, it follows that the obligation under Promissory Note 367-Z (prior loan,
connected to the 40.8M) had become past due and demandable, with further notice expressly
waived, when Central Surety defaulted on its obligations under Promissory Note No. 714-Y
(6M).
Mendoza v. Court of Appeals33 forecloses any doubt that an acceleration clause is valid and
produces legal effects. In fact, in Selegna Management and Development Corporation v. United
Coconut Planters Bank,34 we held that:

Considering that the contract is the law between the parties, respondent is justified in invoking
the acceleration clause declaring the entire obligation immediately due and payable. That
clause obliged petitioners to pay the entire loan on January 29, 1999, the date fixed by
respondent.
It is worth noting that after the delayed payment of P6,000,000.00 was tendered by Central
Surety, Premiere Bank returned the amount as insufficient, ostensibly because there was, at
least, another account that was likewise due. Obviously, in its demand of 28 September 2000,
petitioner sought payment, not just of the P6,000,000.00, but of all these past due accounts.
There is extant testimony to support this claim, as the transcript of stenographic notes on the
testimony of Atty. Araos reveals:
Atty. Opinion: Q. But you accepted this payment of Six Million (P6,000,000.00) later on when
together with this was paid another check for 1.8 Million?
Witness: A. We accepted.
Atty. Opinion: Q. And you applied this to four (4) other accounts three (3) other accounts or to
four (4) accounts mentioned in Exhibit "J." Is that correct?
Atty. Tagalog: We can stipulate on that. Your Honor.
Court: This was stipulated?
Atty. Tagalog: Yes, Your Honor. In fact, there is already stipulation that we confirm that those are
the applications of payments made by the defendant Bank on those loan accounts.
Atty. Opinion: Q. Were these accounts due already when you made this application, distribution
of payments?
Witness: A. Yes sir.35
Conversely, in its evidence-in-chief, Central Surety did not present any witness to testify on the
payment of its obligations. In fact, the record shows that after marking its evidence, Central
Surety proceeded to offer its evidence immediately. Only on the rebuttal stage did Central
Surety present a witness; but even then, no evidence was adduced of payment of any other
obligation. In this light, the Court is constrained to rule that all obligations of Central Surety to
Premiere Bank were due; and thus, the application of payments was warranted.
Being in receipt of amounts tendered by Central Surety, which were insufficient to cover its more
onerous obligations, Premiere Bank cannot be faulted for exercising the authority granted to it
under the Promissory Notes, and applying payment to the obligations as it deemed fit. Subject
to the caveat that our ruling herein shall be limited only to the transactions entered into by the
parties to this case, the Court will not disturb the finding of the lower court that Premiere Bank
rightly applied the payments that Central Surety had tendered. Corollary thereto, and upon the
second issue, the tender of the amount of P6,000,000.00 by Central Surety, and the
encashment of BC Check No. 08114 did not totally extinguish the debt covered by PN No. 714Y (6M) because the 40M debt was also due and demandable.
Release of the pledged
Wack Wack Membership
Contract of Adhesion
To the extent that the subject promissory notes were prepared by the Premiere Bank and
presented to Central Surety for signature, these agreements were, indeed, contracts of
adhesion. But contracts of adhesion are not invalid per se. Contracts of adhesion, where one
party imposes a ready-made form of contract on the other, are not entirely prohibited. The one
who adheres to the contract is, in reality, free to reject it entirely; if he adheres, he gives his
consent.

In interpreting such contracts, however, courts are expected to observe greater vigilance in
order to shield the unwary or weaker party from deceptive schemes contained in ready-made
covenants.36 Thus, Article 24 of the Civil Code pertinently states:
In all contractual, property or other relations, when one of the parties is at a disadvantage on
account of his moral dependence, ignorance, indigence, mental weakness, tender age or other
handicap, the courts must be vigilant for his protection.
But in this case, Central Surety does not appear so weak as to be placed at a distinct
disadvantage vis--vis the bank. As found by the lower court:
Considering that [Central Surety] is a known business entity, the [Premiere Bank] was right in
assuming that the [Central Surety] could not have been cheated or misled in agreeing thereto, it
could have negotiated with the bank on a more favorable term considering that it has already
established a certain reputation with the [Premiere Bank] as evidenced by its numerous
transactions. It is therefore absurd that an established company such as the [Central Surety]
has no knowledge of the law regarding bank practice in loan transactions.
The Dragnet Clause.
The factual circumstances of this case showing the chain of transactions and long-standing
relationship between Premiere Bank and Central Surety militate against the latters prayer in its
complaint for the release of the Wack Wack Membership, the security attached to Promissory
Note 714-Y (6M).
A tally of the facts shows the following transactions between Premiere Bank and Central Surety:
Date

Instrument

Amount
covered

August 20, 1999

PN 714-Y
(6M)

P6M

August 29, 1999

Deed of
Assignment
with Pledge

P 15 M

Stipulation

As security for PN 714-Y

(6M) and/or such Promissory
Note/s which the
ASSIGNOR / PLEDGOR
shall hereafter execute in
favor of the
ASSIGNEE/PLEDGEE

From these transactions and the proviso in the Deed of Assignment with Pledge, it is clear that
the security, which peculiarly specified an amount at P15,000,000.00 (notably greater than the
amount of the promissory note it secured), was intended to guarantee not just the obligation
under PN 714-Y (6M), but also future advances. Thus, the said deed is explicit:
As security for the payment of loan obtained by the ASSIGNOR/PLEDGOR from the
ASSIGNEE/PLEDGEE in the amount of FIFTEEN MILLION PESOS (15,000,000.00) Philippine
Currency in accordance with the Promissory Note attached hereto and made an integral part
hereof as Annex "A" and/or such Promissory Note/s which the ASSIGNOR/PLEDGOR shall
hereafter execute in favor of the ASSIGNEE/PLEDGEE, the ASSIGNOR/PLEDGOR hereby
transfers, assigns, conveys, endorses, encumbers and delivers by way of first pledge unto the
ASSIGNEE/PLEDGEE, its successors and assigns, that certain Membership fee Certificate
Share in Wack Wack Golf and Country Club Incorporate covered by Stock Certificate No. 217
with Serial No. 1793 duly issue by Wack Wack Golf and Country Club Incorporated on August
27, 1996 in the name of the ASSIGNOR." (Emphasis made in the Petition.)

Then, a Continuing Guaranty/Comprehensive Surety Agreement was later executed by Central

Surety as follows:
Date
Notarized,
Sept. 22, 1999

Instrument
Continuing
Guaranty/Comprehensive
Surety Agreement

Amount

Stipulation

P40,898,000.00 In consideration of the

loan and/or any credit
accommodation which
you (petitioner) have
extended and/or will
extend to Central
Surety and Insurance
Co.

And on October 10, 2000, Promissory Note 376-X (40.8M) was entered into, a renewal of the
prior Promissory Note 367-Z (prior loan, connected to the 40.8M), in the amount
of P40,898,000.00. In all, the transactions that transpired between Premiere Bank and Central
Surety manifest themselves, thusly:
Date

Instrument

Amount
covered

Stipulation

August 20, 1999

PN 714-Y (6M)

P6M

August 29, 1999

Deed of Assignment with

Pledge

P 15 M

Notarized,
Sept. 22, 1999

Continuing
Guaranty/Comprehensive
Surety Agreement

P40,898,000.00 In consideration of the loan

and/or any credit
accommodation which you
(petitioner) have extended
and/or will extend to
Central Surety and
Insurance Co.

October 10, 2000

Promissory Note 376-X

(40.8M) (PN 367-Z (prior
loan, connected to the
40.8M))

P40,898,000.00

As security for PN 714-Y

(6M) and/or such
Promissory Note/s which
the ASSIGNOR /
PLEDGOR shall hereafter
execute in favor of the
ASSIGNEE/PLEDGEE

From the foregoing, it is more than apparent that when, on August 29, 1999, the parties
executed the Deed of Assignment with Pledge (of the Wack Wack Membership), to serve as
security for an obligation in the amount ofP15,000,000.00 (when the actual loan covered by PN
No. 714-Y (6M) was only P6,000,000.00), the intent of the parties was for the Wack Wack
Membership to serve as security also for future advancements. The subsequent loan was

nothing more than a fulfillment of the intention of the parties. Of course, because the
subsequent loan was for a much greater amount (P40,898,000.00), it became necessary to put
up another security, in addition to the Wack Wack Membership. Thus, the subsequent surety
agreement and the specific security for PN No. 367-X were, like the Wack Wack Membership,
meant to secure the ballooning debt of the Central Surety.
The above-quoted provision in the Deed of Assignment, also known as the "dragnet clause" in
American jurisprudence, would subsume all debts of respondent of past and future origins. It is
a valid and legal undertaking, and the amounts specified as consideration in the contracts do
not limit the amount for which the pledge or mortgage stands as security, if from the four corners
of the instrument, the intent to secure future and other indebtedness can be gathered. A pledge
or mortgage given to secure future advancements is a continuing security and is not discharged
by the repayment of the amount named in the mortgage until the full amount of all
advancements shall have been paid.37
Our ruling in Prudential Bank v. Alviar38 is instructive:
A "blanket mortgage clause," also known as a "dragnet clause" in American jurisprudence, is
one which is specifically phrased to subsume all debts of past or future origins. Such clauses
are "carefully scrutinized and strictly construed." Mortgages of this character enable the parties
to provide continuous dealings, the nature or extent of which may not be known or anticipated at
the time, and they avoid the expense and inconvenience of executing a new security on each
new transaction. A "dragnet clause" operates as a convenience and accommodation to the
borrowers as it makes available additional funds without their having to execute additional
security documents, thereby saving time, travel, loan closing costs, costs of extra legal services,
recording fees, et cetera. Indeed, it has been settled in a long line of decisions that mortgages
given to secure future advancements are valid and legal contracts, and the amounts named as
consideration in said contracts do not limit the amount for which the mortgage may stand as
security if from the four corners of the instrument the intent to secure future and other
indebtedness can be gathered.
The "blanket mortgage clause" in the instant case states:
That for and in consideration of certain loans, overdraft and other credit accommodations
obtained from the Mortgagee by the Mortgagor and/or ________________ hereinafter referred
to, irrespective of number, as DEBTOR, and to secure the payment of the same and those that
may hereafter be obtained, the principal or all of which is hereby fixed at Two Hundred Fifty
Thousand (P250,000.00) Pesos, Philippine Currency, as well as those that the Mortgagee may
extend to the Mortgagor and/or DEBTOR, including interest and expenses or any other
obligation owing to the Mortgagee, whether direct or indirect, principal or secondary as appears
in the accounts, books and records of the Mortgagee, the Mortgagor does hereby transfer and
convey by way of mortgage unto the Mortgagee, its successors or assigns, the parcels of land
which are described in the list inserted on the back of this document, and/or appended hereto,
together with all the buildings and improvements now existing or which may hereafter be
erected or constructed thereon, of which the Mortgagor declares that he/it is the absolute owner
free from all liens and incumbrances. . . .
xxxx
In the case at bar, the subsequent loans obtained by respondents were secured by other
securities, thus: PN BD#76/C-345, executed by Don Alviar was secured by a "hold-out" on his
foreign currency savings account, while PN BD#76/C-430, executed by respondents for
Donalco Trading, Inc., was secured by "Clean-Phase out TOD CA 3923" and eventually by a
deed of assignment on two promissory notes executed by Bancom Realty Corporation with
Deed of Guarantee in favor of A.U. Valencia and Co., and by a chattel mortgage on various
heavy and transportation equipment. The matter of PN BD#76/C-430 has already been

discussed. Thus, the critical issue is whether the "blanket mortgage" clause applies even to
subsequent advancements for which other securities were intended, or particularly, to PN
BD#76/C-345.
Under American jurisprudence, two schools of thought have emerged on this question. One
school advocates that a "dragnet clause" so worded as to be broad enough to cover all other
debts in addition to the one specifically secured will be construed to cover a different debt,
although such other debt is secured by another mortgage. The contrary thinking maintains that
a mortgage with such a clause will not secure a note that expresses on its face that it is
otherwise secured as to its entirety, at least to anything other than a deficiency after exhausting
the security specified therein, such deficiency being an indebtedness within the meaning of the
mortgage, in the absence of a special contract excluding it from the arrangement.

The latter school represents the better position. The parties having
conformed to the "blanket mortgage clause" or "dragnet clause," it is
reasonable to conclude that they also agreed to an implied understanding
that subsequent loans need not be secured by other securities, as the
subsequent loans will be secured by the first mortgage. In other words, the
sufficiency of the first security is a corollary component of the "dragnet
clause." But of course, there is no prohibition, as in the mortgage contract in issue,
against contractually requiring other securities for the subsequent loans. Thus, when the
mortgagor takes another loan for which another security was given it could not be
inferred that such loan was made in reliance solely on the original security with the
dragnet clause, but rather, on the new security given. This is the reliance on the
security test.
Hence, based on the reliance on the security test, the California court in the cited
case made an inquiry whether the second loan was made in reliance on the original
security containing a dragnet clause. Accordingly, finding a different security was taken
for the second loan no intent that the parties relied on the security of the first loan could
be inferred, so it was held. The rationale involved, the court said, was that the dragnet
clause in the first security instrument constituted a continuing offer by the borrower to
secure further loans under the security of the first security instrument, and that when the
lender accepted a different security he did not accept the offer.
In another case, it was held that a mortgage with a dragnet clause is an offer
by the mortgagor to the bank to provide the security of the mortgage for advances of and
when they were made. Thus, it was concluded that the offer was not accepted by
the bank when a subsequent advance was made because (1) the second note was
secured by a chattel mortgage on certain vehicles, and the clause therein stated that the
note was secured by such chattel mortgage; (2) there was no reference in the second
note or chattel mortgage indicating a connection between the real estate mortgage and
the advance; (3) the mortgagor signed the real estate mortgage by her name alone,
whereas the second note and chattel mortgage were signed by the mortgagor doing
business under an assumed name; and (4) there was no allegation by the bank, and
apparently no proof, that it relied on the security of the real estate mortgage in making
the advance.
Indeed, in some instances, it has been held that in the absence of clear,
supportive evidence of a contrary intention, a mortgage containing a dragnet clause will
not be extended to cover future advances unless the document evidencing the
subsequent advance refers to the mortgage as providing security therefor.

It was therefore improper for petitioner in this case to seek foreclosure of the
mortgaged property because of non-payment of all the three promissory notes. While the
existence and validity of the dragnet clause cannot be denied, there is a need to respect
the existence of the other security given for PN BD#76/C-345. The foreclosure of the
mortgaged property should only be for the P250,000.00 loan covered by PN BD#75/C252, and for any amount not covered by the security for the second promissory note. As
held in one case, where deeds absolute in form were executed to secure any and all
kinds of indebtedness that might subsequently become due, a balance due on a note,
after exhausting the special security given for the payment of such note, was in the
absence of a special agreement to the contrary, within the protection of the mortgage,
notwithstanding the giving of the special security. This is recognition that while the
dragnet clause subsists, the security specifically executed for subsequent loans must
first be exhausted before the mortgaged property can be resorted to.
The security clause involved in the case at bar shows that, by its terms:
As security for the payment of loan obtained by the assignor/pledgor from the
assignee/pledgee in the amount of fifteen million pesos (15,000,000.00) Philippine
Currency in accordance with the Promissory Note attached hereto and made an integral
part hereof as Annex A and/or such Promissory Note/s which the assignor/pledgor shall
hereafter execute in favor of the assignee/pledgee, the assignor/ pledgor hereby
transfers, assigns, conveys, endorses, encumbers and delivers by way of first pledge
unto the assignee/pledgee, its successors and assigns, that certain Membership fee
Certificate Share in Wack Wack Golf and Country Club Incorporated covered by Stock
Certificate No. 217 with Serial No. 1793 duly issue by Wack Wack Golf and Country Club
Incorporated on August 27, 1996 in the name of the assignor.
it is comparable with the security clause in the case of Prudential, viz.:
That for and in consideration of certain loans, overdraft and other credit accommodations
obtained from the Mortgagee by the Mortgagor and/or ________________ hereinafter
referred to, irrespective of number, as DEBTOR, and to secure the payment of the same
and those that may hereafter be obtained, the principal or all of which is hereby fixed at
Two Hundred Fifty Thousand (P250,000.00) Pesos, Philippine Currency, as well as those
that the Mortgagee may extend to the Mortgagor and/or DEBTOR, including interest and
expenses or any other obligation owing to the Mortgagee, whether direct or indirect,
principal or secondary as appears in the accounts, books and records of the Mortgagee,
the Mortgagor does hereby transfer and convey by way of mortgage unto the
Mortgagee, its successors or assigns, the parcels of land which are described in the list
inserted on the back of this document, and/or appended hereto, together with all the
buildings and improvements now existing or which may hereafter be erected or
constructed thereon, of which the Mortgagor declares that he/it is the absolute owner free
from all liens and incumbrances. . . .
and there is no substantive difference between the terms utilized in both clauses securing future
advances.
To recall, the critical issue resolved in Prudential was whether the blanket mortgage clause
applies even to subsequent advancements for which other securities were intended. We then declared
that the special security for subsequent loans must first be exhausted in a situation where the creditor
desires to foreclose on the subsequent loans that are due. However, the dragnet clause allows the

creditor to hold on to the first security in case of deficiency after foreclosure on the special security for the
subsequent loans.
In Prudential, we disallowed the petitioners attempt at multiple foreclosures, as it foreclosed on
all of the mortgaged properties serving as individual securities for each of the three loans. This Court
then laid down the rule, thus:
where deeds absolute in form were executed to secure any and all kinds of indebtedness
that might subsequently become due, a balance due on a note, after exhausting the
special security given for the payment of such note, was, in the absence of a special
agreement to the contrary, within the protection of the mortgage, notwithstanding the
giving of the special security. This is recognition that while the dragnet clause subsists,
the security specifically executed for subsequent loans must first be exhausted before the
mortgaged property can be resorted to.
However, this does not prevent the creditor from foreclosing on the security for the first loan if that
loan is past due, because there is nothing in law that prohibits the exercise of that right. Hence, in the
case at bench, Premiere Bank has the right to foreclose on the Wack Wack Membership, the security
corresponding to the first promissory note, with the deed of assignment that originated the dragnet
clause. This conforms to the doctrine in Prudential, as, in fact, acknowledged in the decisions
penultimate paragraph, viz.:
Petitioner, however, is not without recourse. Both the Court of Appeals and the
trial court found that respondents have not yet paid the P250,000.00 and gave no
credence to their claim that they paid the said amount when they paid
petitioner P2,000,000.00. Thus, the mortgaged property could still be properly subjected
to foreclosure proceedings for the unpaid P250,000.00 loan, and as mentioned earlier, for
any deficiency after D/A SFDX#129, security for PN BD#76/c-345, has been exhausted,
subject of course to defenses which are available to respondents.
In any event, even without this Courts prescription in Prudential, the release of the Wack Wack
Membership as the pledged security for Promissory Note 714-Y cannot yet be done as sought by Central
Surety. The chain of contracts concluded between Premiere Bank and Central Surety reveals that the
Wack Wack Membership, which stood as security for Promissory Note 714-Y, and which also stands as
security for subsequent debts of Central Surety, is a security in the form of a pledge. Its return to Central
Surety upon the pretext that Central Surety is entitled to pay only the obligation in Promissory Note No.
714-Y, will result in the extinguishment of the pledge, even with respect to the subsequent obligations,
because Article 2110 of the Civil Code provides:
(I)f the thing pledged is returned by the pledgor or owner, the pledge is
extinguished. Any stipulation to the contrary is void.
This is contrary to the express agreement of the parties, something which Central Surety wants this Court
to undo. We reiterate that, as a rule, courts cannot intervene to save parties from disadvantageous
provisions of their contracts if they consented to the same freely and voluntarily.[39]
Attorneys Fees
The final issue is the propriety of attorneys fees. The trial court based its award on the supposed
malice of Central Surety in instituting this case against Premiere Bank. We find no malice on the part of
Central Surety; indeed, we are convinced that Central Surety filed the case in the lower court in good
faith, upon the honest belief that it had the prerogative to choose to which loan its payments should be
applied.

Malicious prosecution, both in criminal and civil cases, requires the presence of two elements, to
wit: (a) malice and (b) absence of probable cause. Moreover, there must be proof that the prosecution
was prompted by a sinister design to vex and humiliate a person; and that it was initiated deliberately,
knowing that the charge was false and baseless. Hence, the mere filing of what turns out to be an
unsuccessful suit does not render a person liable for malicious prosecution, for the law could not have
meant to impose a penalty on the right to litigate. [40] Malice must be proved with clear and convincing
evidence, which we find wanting in this case.
WHEREFORE, the instant petition is PARTIALLY GRANTED. The assailed Decision of the
Court of Appeals in CA-G.R. CV No. 85930 dated July 31, 2006, as well as its Resolution dated January
4, 2007, are REVERSED and SET ASIDE. The Decision of the Regional Trial Court of Makati City,
Branch 132, in Civil Case No. 00-1536, dated July 12, 2005, is REINSTATED with
the MODIFICATION that the award of attorneys fees to petitioner is DELETED. No pronouncement as to
costs.
SO ORDERED.
[G.R. No. 116805. June 22, 2000]
MARIO S. ESPINA, petitioner, vs. THE COURT OF APPEALS and RENE G. DIAZ, respondents.
DECISION
PARDO, J.:
The case before the Court is an appeal from a decision of the Court of Appeals reversing that of the Regional Trial
Court, Antipolo, Rizal, affirming in all respects the decision of the Municipal Trial Court, Antipolo, Rizal, ordering
respondent Rene G. Diaz to vacate the condominium unit owned by petitioner and to pay back current rentals,
attorney's fees and costs.
The facts, as found by the Court of Appeals, are as follows:
"Mario S. Espina is the registered owner of a Condominium Unit No. 403, Victoria Valley
Condominium, Valley Golf Subdivision, Antipolo, Rizal. Such ownership is evidenced by
Condominium Certificate of Title No. N-10 (p. 31, Rollo).
"On November 29, 1991, Mario S. Espina, the private respondent as seller, and Rene G. Diaz, the
petitioner as buyer, executed a Provisional Deed of Sale, whereby the former sold to the latter the
aforesaid condominium unit for the amount of P100,000.00 to be paid upon the execution of the
contract and the balance to be paid through PCI Bank postdated checks as follows:
"1...........P400,000.00
..............Check No. 301245
..............January 15, 1992
"2...........P200,000.00
..............Check No. 301246
..............February 1, 1992
"3...........P200,000.00
..............Check No. 301247
..............February 22, 1992
"4...........P200,000.00
..............Check No. 301248
..............March 14, 1992
"5...........P200,000.00
..............Check No. 301249
..............April 4, 1992
"6...........P200,000.00
..............Check No. 301250
..............April 25, 1992
.............................(pp. 59-61, Rollo).
batas

[1]

[2]

[3]

haideem

"Subsequently, in a letter dated January 22, 1992, petitioner informed private respondent that his
checking account with PCI Bank has been closed and a new checking account with the same
drawee bank is opened for practical purposes. The letter further stated that the postdated checks
issued will be replaced with new ones in the same drawee bank (p. 63, Rollo).
"On January 25, 1992, petitioner through Ms. Socorro Diaz, wife of petitioner, paid private
respondent Mario Espina P200,000.00, acknowledged by him as partial payment for the
condominium unit subject of this controversy (p.64, Rollo).
"On July 26, 1992, private respondent sent petitioner a "Notice of Cancellation" of the Provisional
Deed of Sale (p. 48, Rollo).
"However, despite the Notice of Cancellation from private respondent, the latter accepted payment
from petitioner per Metrobank Check No. 395694 dated and encashed on October 28, 1992 in the
amount of P 100,000.00 (p. 64, Rollo).
"On February 24, 1993, private respondent filed a complaint docketed as Civil Case No. 2104 for
Unlawful Detainer against petitioner before the Municipal Trial Court of Antipolo, Branch 1.
"On November 12, 1993, the trial court rendered its decision, the dispositive portion of which reads:
WHEREFORE, in view of the foregoing consideration, judgment is hereby
rendered ordering the defendant and all persons claiming rights under him to
vacate unit 403 of the Victoria Golf Valley Condominium, Valley Golf Subdivision,
Antipolo, Rizal; to pay the total arrears of P126,000.00, covering the period July
1991 up to the filing (sic) complaint, and to pay P7,000.00 every month thereafter
as rentals unit (sic) he vacates the premises; to pay the amount of P5,000.00 as
and attorney's fees; the amount of P300.00 per appearance, and costs of suit.
However, the plaintiff may refund to the defendant the balance from (sic)
P400,000.00 after deducting all the total obligations of the defendant as specified
in the decision from receipt of said decision.
SO ORDERED.' (Decision, Annex "B"; p. 27, Rollo)
"From the said decision, petitioner appealed to the Regional Trial Court Branch 71, Antipolo, Rizal.
On April 29, 1994, said appellate court affirmed in all respects the decision of the trial court."
On June 14, 1994, petitioner filed with the Court of Appeals a petition for review.
On July 20, 1994, the Court of Appeals promulgated its decision reversing the appealed decision and dismissing the
complaint for unlawful detainer with costs against petitioner Espina.
On August 8, 1994, petitioner filed a motion for reconsideration of the decision of the Court of Appeals.
On August 19, 1994, the Court of Appeals denied the motion.
Hence, this appeal via petition for review on certiorari.
The basic issue raised is whether the Court of Appeals erred in ruling that the provisional deed of sale novated the
existing contract of lease and that petitioner had no cause of action for ejectment against respondent Diaz.
We resolve the issue in favor of petitioner.
According to respondent Diaz, the provisional deed of sale that was subsequently executed by the parties novated
the original existing contract of lease. The contention cannot be sustained. Respondent originally occupied the
condominium unit in question in 1987 as a lessee. While he occupied the premises as lessee, petitioner agreed to
sell the condominium unit to respondent by installments. The agreement to sell was provisional as the consideration
was payable in installments.
The question is, did the provisional deed of sale novate the existing lease contract? The answer is no. The novation
must be clearly proved since its existence is not presumed. "In this light, novation is never presumed; it must be
proven as a fact either by express stipulation of the parties or by implication derived from an irreconcilable
incompatibility between old and new obligations or contracts." Novation takes place only if the parties expressly so
provide, otherwise, the original contract remains in force. In other words, the parties to a contract must expressly
agree that they are abrogating their old contract in favor of a new one. Where there is no clear agreement to create
a new contract in place of the existing one, novation cannot be presumed to take place, unless the terms of the new
contract are fully incompatible with the former agreement on every point. Thus, a deed of cession of the right to
repurchase a piece of land does not supersede a contract of lease over the same property. In the provisional deed of
sale in this case,FACTS!!!!!!!! after the initial down payment, respondent's checks in payment of six installments all
bounced and were dishonored upon presentment for the reason that the bank account was closed. Consequently,
on July 26, 1992, petitioner terminated the provisional deed of sale by a notarial notice of cancellation. Nonetheless,
Chiefx

[4]

[5]

[6]

[7]

[8]

[9]

Esmsc

[10]

[11]

[12]

[13]

[14]

[15]

[16]

respondent Diaz continued to occupy the premises, as lessee, but failed to pay the rentals due. On October 28, 1992,
respondent made a payment of P100,000.00 that may be applied either to the back rentals or for the purchase of the
condominium unit. On February 13, 1993, petitioner gave respondent a notice to vacate the premises and to pay his
back rentals. Failing to do so, respondent's possession became unlawful and his eviction was proper. Hence, on
February 24, 1993, petitioner filed with the Municipal Trial Court, Antipolo, Rizal, Branch 01 an action for unlawful
detainer against respondent Diaz.
Now respondent contends that the petitioner's subsequent acceptance of such payment effectively withdrew the
cancellation of the provisional sale. We do not agree. Unless the application of payment is expressly indicated, the
payment shall be applied to the obligation most onerous to the debtor. In this case, the unpaid rentals constituted the
more onerous obligation of the respondent to petitioner. As the payment did not fully settle the unpaid rentals,
petitioner's cause of action for ejectment survives. Thus, the Court of Appeals erred in ruling that the payment was
"additional payment" for the purchase of the property.
WHEREFORE, the Court GRANTS the petition for review on certiorari, and REVERSES the decision of the Court of
Appeals. Consequently, the Court REVIVES the decision of the Regional Trial Court, Antipolo, Rizal, Branch 71,
affirming in toto the decision of the Municipal Trial Court, Antipolo, Rizal, Branch 01.
No costs.
SO ORDERED.
[17]

[18]

[19]

[20]

[21]

[22]

1256-1261 TENDER OF PAYMENT AND CONSIGNATION

TEDDY G. PABUGAIS, petitioner
vs.
DAVE P. SAHIJWANI, respondent.
DECISION
YNARES-SANTIAGO, J.:
Assailed in this petition for review on certiorari is the January 16, 2003 Amended Decision1 of
the Court of Appeals2in CA-G.R. CV No. 55740 which set aside the November 29, 1996
Decision3 of the Regional Trial Court of Makati, Branch 64, in Civil Case No. 94-2363.
Pursuant to an "Agreement And Undertaking"4 dated December 3, 1993, petitioner Teddy G.
Pabugais, in consideration of the amount of Fifteen Million Four Hundred Eighty Seven
Thousand Five Hundred Pesos (P15,487,500.00), agreed to sell to respondent Dave P.
Sahijwani a lot containing 1,239 square meters located at Jacaranda Street, North Forbes Park,
Makati, Metro Manila. Respondent paid petitioner 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 owners duplicate Transfer
Certificate of Title in respondents name the Deed of Absolute Sale; the Certificate of Non-Tax
Delinquency on real estate taxes and Clearance on Payment of Association Dues. The parties
further agreed that failure on the part of respondent to pay the balance of the purchase price
entitles petitioner to forfeit the P600,000.00 option/reservation fee; while non-delivery by the
latter of the necessary documents obliges him to return to respondent the said
option/reservation fee with interest at 18% per annum, thus
5. DEFAULT In case the FIRST PARTY [herein respondent] 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 [herein petitioner] 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.5
Petitioner failed to deliver the required documents. In compliance with their agreement, he
returned to respondent the latters P600,000.00 option/reservation fee by way of Far East Bank
& Trust Company Check No. 25AO54252P, which was, however, dishonored.

What transpired thereafter is disputed by both parties. Petitioner claimed that he twice tendered
to respondent, through his counsel, the amount of 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 Far East Bank & Trust Company Managers Check No. 088498, dated
August 3, 1994, but said counsel refused to accept the same. His first attempt to tender
payment was allegedly made on August 3, 1994 through his messenger;6 while the second one
was on August 8, 1994,7 when he sent via DHL Worldwide Services, the managers check
attached to a letter dated August 5, 1994.8 On August 11, 1994, petitioner wrote a letter to
respondent saying that he is consigning the amount tendered with the Regional Trial Court of
Makati City.9 On August 15, 1994, petitioner filed a complaint for consignation.10
Respondents counsel, on the other hand, admitted that his office received petitioners letter
dated August 5, 1994, but claimed that no check was appended thereto.11 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,12 because petitioner verbally promised to pay 3%
monthly interest and 25% attorneys fees as penalty for default, in addition to the interest of 18%
per annum on the P600,000.00 option/reservation fee.13
On November 29, 1996, the trial court rendered a decision declaring the consignation invalid for
failure to prove that petitioner tendered payment to respondent and that the latter refused to
receive the same. It further held that even assuming that respondent refused the tender, the
same is justified because the managers check allegedly offered by petitioner was not legal
tender, hence, there was no valid tender of payment. The trial court ordered petitioner to pay
respondent the amount of P600,000.00 with interest of 18% per annum from December 3, 1993
until fully paid, plus moral damages and attorneys fees.14
Petitioner appealed the decision to the Court of Appeals. Meanwhile, his counsel, Atty.
Wilhelmina V. Joven, died and she was substituted by Atty. Salvador P. De Guzman, Jr.15 On
December 20, 2001, petitioner executed a "Deed of Assignment"16 assigning in favor of Atty. De
Guzman, Jr., part of the P672,900.00 consigned with the trial court as partial payment of the
latters attorneys fees.17 Thereafter, on January 7, 2002, petitioner filed an Ex Parte Motion to
Withdraw Consigned Money.18 This was followed by a "Motion to Intervene" filed by Atty. De
Guzman, Jr., praying that the amount consigned be released to him by virtue of the Deed of
Assignment.19
Petitioners motion to withdraw the amount consigned was denied by the Court of Appeals and
the decision of the trial court was affirmed with modification as to the amount of moral damages
and attorneys fees.20
On a motion for reconsideration, the Court of Appeals declared the consignation as valid in an
Amended Decision dated January 16, 2003. It held that the validity of the consignation had the
effect of extinguishing petitioners obligation to return the option/reservation fee to respondent.
Hence, petitioner can no longer withdraw the same. The decretal portion of the Amended
Decision states:
WHEREFORE, premises considered, our decision dated April 26, 2002 is RECONSIDERED.
The trial courts decision is hereby REVERSED and SET ASIDE, and a new one is entered (1)
DECLARING as valid the consignation by the plaintiff-appellant in favor of defendant-appellee of
the amount of P672,900.00 with the Makati City RTC Clerk of Court and deposited under Official
Receipt No. 379061 dated 15 August 1994 and (2) DECLARING as extinguished appellants
obligation in favor of appellee under paragraph 5 of the parties "AGREEMENT AND
UNDERTAKING". Neither party shall recover costs from the other.

SO ORDERED.21
Unfazed, petitioner filed the instant petition for review contending, inter alia, that 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 Court of Appeals has yet to rule on the consignations
validity and the respondent had not yet accepted the same.
The resolution of the case at bar hinges on the following issues: (1) Was there a valid
consignation? and (2) Can petitioner withdraw the amount consigned as a matter of right?
Consignation is the act of depositing the thing due with the court or judicial authorities whenever
the creditor cannot accept or refuses to accept payment and it generally requires a prior tender
of payment.22 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.23
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
respondent, the reasons why his client did not accept petitioners tender of payment were (1)
the check mentioned in the August 5, 1994 letter of petitioner 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 respondents non-acceptance of the tender
of payment was the alleged insufficiency thereof and not because the said check was not
tendered to respondent, or because it was in the form of managers check. While it is true that in
general, a managers check is not legal tender, the creditor has the option of refusing or
accepting it.24 Payment in check by the debtor may be acceptable as valid, if no prompt
objection to said payment is made.25 Consequently, petitioners tender of payment in the form of
managers 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, thus
5. DEFAULT In case the FIRST PARTY [herein respondent] 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 [herein petitioner] 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.26
The managers check in the amount of 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) which was tendered but refused by respondent, and thereafter consigned with the
court, was enough to satisfy the obligation.
There being a valid tender of payment in an amount sufficient to extinguish the obligation, the
consignation is valid.
As regards petitioners right to withdraw the amount consigned, reliance on Article 1260 of the
Civil Code is misplaced. The said Article provides

Art. 1260. Once the consignation has been duly made, the debtor may ask the judge to order
the cancellation of the obligation.
Before the creditor has accepted the consignation, or before a judicial confirmation that the
consignation has been properly made, the debtor may withdraw the thing or the sum deposited,
allowing the obligation to remain in force.
The amount consigned with the trial court can no longer be withdrawn by petitioner because
respondents 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 petitioners obligation.
Moreover, petitioner 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 respondent.
The withdrawal of the amount deposited in order to pay attorneys fees to petitioners 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.27 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 attorneys
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 petitioner knowingly and voluntarily assigned the
subject amount to his counsel did not remove their agreement within the ambit of the prohibitory
provisions.28 To grant the withdrawal would be to sanction a void contract.29
WHEREFORE, in view of all the foregoing, the instant petition for review is DENIED. The
January 16, 2003 Amended Decision of the Court of Appeals in CA-G.R. CV No. 55740, which
declared the consignation by the petitioner in favor of respondent of the amount of P672,900.00
with the Clerk of Court of the Regional Trial Court of Makati City valid, and which declared
petitioners obligation to respondent under paragraph 5 of the "Agreement And Undertaking" as
having been extinguished, is AFFIRMED. No costs.
SO ORDERED.
SPS. RICARDO AND LYDIA LLOBRERA, SPS. BENJAMIN AND ESTHER LLOBRERA, SPS.
MIKE AND RESIDA MALA, SPS. OTOR AND DOLINANG BAGONTE, SPS. EDUARDO AND
DAMIANA ICO, SPS. ANTONIO AND MERLY SOLOMON, SPS. ANSELMO AND VICKY
SOLOMON, SPS. ALEX AND CARMELITA CALLEJO, SPS. DEMETRIO AND JOSEFINA
FERRER, SPS. BENJAMIN AND ANITA MISLANG, SPS. DOMINGO AND FELICIDAD
SANCHEZ, SPS. FERNANDO AND CARMELITA QUEBRAL, SPS. BERNARDO AND
PRISCILLA MOLINA, PRISCILLA BAGA AND BELEN SEMBRANO, Petitioners,
vs.
JOSEFINA V. FERNANDEZ, Respondent.
DECISION
GARCIA, J.:
Under consideration is this petition for review on certiorari under Rule 45 of the Rules of Court
to nullify and set aside the following issuances of the Court of Appeals (CA) in CA-G.R. SP No.
48918, to wit:

1. Decision dated June 30, 1999,1 affirming the Decision dated August 7, 1998 of the
Regional Trial Court (RTC) of Dagupan City, Branch 41, in Civil Case No. 98-02353-D which
affirmed an earlier decision of the Municipal Trial Court in Cities (MTCC), Dagupan City,
Branch 2, in Civil Case No. 10848, entitled "Josefina F. De Venecia Fernandez vs. Sps.
Mariano and Lourdes Melecio, et al.," an action for ejectment.
2. Resolution dated March 27, 2000,2 denying petitioners motion for reconsideration.

Subject of the controversy is a 1,849 square-meter parcel of land, covered by Transfer

Certificate of Title No. 9042. Respondent Josefina V. Fernandez, as one of the registered coowners of the land, served a written demand letter upon petitioners Spouses Llobrera, et al., to
vacate the premises within fifteen (15) days from notice. Receipt of the demand letter
notwithstanding, petitioners refused to vacate, necessitating the filing by the respondent of a
formal complaint against them before the Barangay Captain of Barangay 11, Dagupan City.
Upon failure of the parties to reach any settlement, the Barangay Captain issued the necessary
certification to file action.
Respondent then filed a verified Complaint for ejectment and damages against the petitioners
before the MTCC of Dagupan City, which complaint was raffled to Branch 2 thereof.
By way of defense, petitioners alleged in their Answer that they had been occupying the
property in question beginning the year 1945 onwards, when their predecessors-in-interest, with
the permission of Gualberto de Venecia, one of the other co-owners of said land, developed and
occupied the same on condition that they will pay their monthly rental of P20.00 each. From
then on, they have continuously paid their monthly rentals to Gualberto de Venecia or Rosita de
Venecia or their representatives, such payments being duly acknowledged by receipts.
Beginning sometime June 1996, however, the representative of Gualberto de Venecia refused
to accept their rentals, prompting them to consign the same to Banco San Juan, which bank
deposit they continued to maintain and update with their monthly rental payments.
In a decision dated February 18, 1998, the MTCC rendered judgment for the respondent as
plaintiff, thus:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and
against the defendants as follows:
1. Ordering each of the defendants to vacate the portion of the land in question they
respectively occupy and to restore the possession thereof to the plaintiff and her co-owners;
2. Ordering each of the defendants to pay to the plaintiff the amount of P300.00 per month
from January 17, 1997 until they vacate the land in question as the reasonable
compensation for the use and occupation of the premises;
3. Ordering the defendants to pay proportionately the amount of P10,000.00 as attorneys
fee and P2,000.00 as litigation expenses, and to pay the cost of suit.
SO ORDERED.
On petitioners appeal to the RTC of Dagupan City, Branch 41 thereof, in its decision of August
7, 1998, affirmed the foregoing judgment.
Therefrom, petitioners went to the CA whereat their recourse was docketed as CA-G.R. SP. No.
48918. As stated at the threshold hereof, the CA, in its Decision of June 30, 1999, affirmed that
of the RTC. With the CAs denial of their motion for reconsideration, in its Resolution of March
27, 2000, petitioners are now before this Court with the following assignment of errors:
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN:
A. HOLDING THAT THE OCCUPATION AND POSSESSION oF THE PROPERTY in
question is by mere tolerance of the respondent.

B. holding that the failure of the petitioners (defendants) to vacate the premises after
demands were made upon them is a valid ground for their ejectment.
C. holding that the consignation made by petitioners in contemplation of article 1256 of the
new civil code is not legally tenable.
D. affirming the decision of the regional trial court dated August 7, 1998 which, likewise
affirmed the decision of the mtcc decision dated February 18, 1998 insofar as the order for
the petitioners (defendants) to pay rental and attorneys fees and litigation expenses.
1avvphil.net

At the heart of the controversy is the issue of whether petitioners possession of the subject
property is founded on contract or not. This factual issue was resolved by the three (3) courts
below in favor of respondent. As tersely put by the CA in its assailed decision of June 30, 1999:
Petitioners failed to present any written memorandum of the alleged lease arrangements
between them and Gualberto De Venecia. The receipts claimed to have been issued by the
owner were not presented on the excuse that the March 19, 1996 fire burned the same. Simply
put, there is a dearth of evidence to substantiate the averred lessor-lessee relationship. x x x.3
Consistent with this Courts long-standing policy, when the three courts below have consistently
and unanimously ruled on a factual issue, such ruling is deemed final and conclusive upon this
Court, especially in the absence of any cogent reason to depart therefrom.
From the absence of proof of any contractual basis for petitioners possession of the subject
premises, the only legal implication is that their possession thereof is by mere tolerance. In
Roxas vs. Court of Appeals,4 we ruled:
A person who occupies the land of another at the latters tolerance or permission, without any
contract between them, is necessarily bound by an implied promise that he will vacate upon
demand, failing which, a summary action for ejectment is the proper remedy against him.
The judgment favoring the ejectment of petitioners being consistent with law and jurisprudence
can only be affirmed. The alleged consignation of the P20.00 monthly rental to a bank account
in respondents name cannot save the day for the petitioners simply because of the absence of
any contractual basis for their claim to rightful possession of the subject property. Consignation
based on Article 1256 of the Civil Code indispensably requires a creditor-debtor relationship
between the parties, in the absence of which, the legal effects thereof cannot be availed of.
Article 1256 pertinently provides:
Art. 1256. If the creditor to whom tender of payment has been made refuses without just cause
to accept it, the debtor shall be released from responsibility by the consignation of the thing or
sum due.
Unless there is an unjust refusal by a creditor to accept payment from a debtor, Article 1256
cannot apply. In the present case, the possession of the property by the petitioners being by
mere tolerance as they failed to establish through competent evidence the existence of any
contractual relations between them and the respondent, the latter has no obligation to receive
any payment from them. Since respondent is not a creditor to petitioners as far as the
alleged P20.00 monthly rental payment is concerned, respondent cannot be compelled to
receive such payment even through consignation under Article 1256. The bank deposit made by
the petitioners intended as consignation has no legal effect insofar as the respondent is
concerned.
Finally, as regards the damages awarded by the MTCC in favor of the respondent, as affirmed
by both the RTC and the CA, petitioners failed to present any convincing argument for the Court
to modify the same. The facts of the case duly warrant payment by the petitioners to respondent
of actual and compensatory damages for depriving the latter of the beneficial use and

possession of the property. Also, the unjustified refusal to surrender possession of the property
by the petitioners who were fully aware that they cannot present any competent evidence before
the court to prove their claim to rightful possession as against the true owners is a valid legal
basis to award attorneys fees as damages, as well as litigation expenses and cost of suit.
Rule 70 of the Rules of Court relevantly reads:
Sec. 17. Judgment. If after trial the court finds that the allegations of the complaint are true, it
shall render judgment in favor of the plaintiff for the restitution of the premises, the sum justly
due as arrears of rent or as reasonable compensation for the use and occupation of the
premises, attorneys fees and costs. If it finds that said allegations are not true, it shall render
judgment for the defendant to recover his costs. If a counterclaim is established, the court shall
render judgment for the sum found in arrears from either party and award costs as justice
requires. (Emphasis supplied).
There is no doubt whatsoever that it is within the MTCCs competence and jurisdiction to award
attorneys fees and costs in an ejectment case. After thoroughly considering petitioners
arguments in this respect, the Court cannot find any strong and compelling reason to disturb the
unanimous ruling of the three (3) courts below on the matter of damages.
WHEREFORE, the petition is hereby DENIED for lack of merit, with costs against petitioners.
SO ORDERED.
SPS. JAIME BENOS and MARINA BENOS, petitioners,
vs.
SPS. GREGORIO LAWILAO and JANICE GAIL LAWILAO, respondents.

DECISION

YNARES-SANTIAGO, J.:
This petition for review under Rule 45 of the Rules of Court assails the December 5, 2005
Decision1 of the Court of Appeals in CA-G.R. SP No. 78845, affirming the Judgment2 dated July
1, 2003 of the Regional Trial Court of Bontoc, Mountain Province, Branch 35, in Civil Case No.
1091. The Regional Trial Court reversed the Decision3dated November 14, 2002 of the
Municipal Circuit Trial Court of Bauko, Mountain Province in Civil Case No. 314, and ordered the
consolidation of ownership of subject property in the name of respondent-spouses Gregorio and
Janice Gail Lawilao. Also assailed is the March 17, 2006 Resolution4 denying petitioners motion
for reconsideration.
The antecedent facts are as follows:
On February 11, 1999, petitioner-spouses Jaime and Marina Benos ("the Benos spouses") and
respondent-spouses Gregorio and Janice Gail Lawilao ("the Lawilao spouses") executed a
Pacto de Retro Sale5 where the Benos spouses sold their lot covered by Tax Declaration No.
25300 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.

After paying the P150,000.00, 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.
On August 14, 2000, a son of the Benos spouses paid the bank P159,000.00 representing 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 petition6 docketed as Civil Case No. 310 for consignation
against the bank and simultaneously deposited the amount of P159,000.00. Upon the banks
motion, the court dismissed the petition for lack of cause of action.
Subsequently, the Lawilao spouses filed with the Municipal Circuit Trial Court a complaint
docketed as Civil Case No. 314, for consolidation of ownership. This complaint is the precursor
of the instant petition. The Benos spouses moved to dismiss on grounds of lack of jurisdiction
and lack of cause of action but it was denied and the parties went to trial.
On November 14, 2002, the Municipal Circuit Trial Court rendered judgment in favor of the
Benos spouses, the dispositive portion of which states:
IN THE LIGHT of all the foregoing considerations, for lack of legal and factual basis to
demand consolidation of ownership over the subject property, the above-entitled case is
hereby ordered dismissed.
No pronouncement as to damages on the ground that no premium should be assessed on
the right to litigate.
No costs.
SO ORDERED.7
The Lawilao spouses appealed before the Regional Trial Court which reversed the Municipal
Circuit Trial Court and declared the ownership of the subject property consolidated in favor of
the Lawilao spouses.8
The Benos spouses appealed to the Court of Appeals which affirmed the Regional Trial Court
on December 5, 2005. The dispositive portion of the Decision reads:
WHEREFORE, the petition for review is DISMISSED for lack of sufficient merit. The decision
rendered by the Regional Trial Court, Branch 35, Bontoc, Mountain Province in Civil Case
No. 1091 on 1 July 2003, reversing the decision of the Municipal Circuit Trial Court of BaukoSabangan, Mountain Province in (Civil Case No.) 314, is AFFIRMED.
SO ORDERED.9
The appellate court denied petitioners motion for reconsideration, hence, the instant petition on
the following assignment of errors:
4.0. It was error for the Regional Trial Court and, subsequently, the Court of Appeals to rule
that respondents can consolidate ownership over the subject property.
4.1. It was likewise error for said lower courts not to have ruled that the contract between the
parties is actually an equitable mortgage.10
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; that the contract was actually an equitable mortgage as shown by the inadequacy of
the consideration for the subject property; and that respondent-spouses remedy should have
been for recovery of the loan or foreclosure of mortgage.
The Lawilao spouses, on the other hand, assert that the Pacto de Retro Sale reflected the
parties true agreement; that the Benos spouses cannot vary its terms and conditions because
they did not put in issue in their pleadings its ambiguity, mistake or imperfection as well as its
failure to express the parties true intention; that the Benos spouses admitted its genuineness

and due execution; and that the delivery of the property to the Lawilao spouses after the
execution of the contract shows that the agreement was a sale with a right of repurchase and
not an equitable mortgage.
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 (Lawilao spouses).
The issue for resolution is whether the Lawilao spouses can consolidate ownership over the
subject property.
The petition is impressed with merit.
In ruling for respondents, the Court of Appeals held that: (1) the pacto de retro sale was
perfected because the parties voluntarily agreed upon the object thereof and the price; (2) the
Lawilao spouses acquired possession over the property immediately after execution of the
pacto de retro sale; (3) the pacto de retro sale does not provide for automatic rescission in case
the Lawilao spouses fail to pay the full price; (4) the Benos spouses did not rescind the contract
after the Lawilao spouses failed to pay the P150,000.00 loan; (5) Janice Lawilao offered to pay
the loan and deposited P150,000.00 to the bank although the period for payment had expired
thus, complying with Article 1592 of the Civil Code allowing payment even after expiration of the
period as long as no demand for rescission of the contract had been made either judicially or by
a notarial act; (6) the title and ownership of the Lawilao spouses became absolute when the
Benos spouses failed to repurchase the lot within the redemption period; and (7) the payment
by the Benos spouses son of P159,000.00 to the bank does not amount to a repurchase as it
violates Article 1616 of the Civil Code requiring the vendor to return to the vendee the price of
the sale, the expenses of the contract and other necessary and useful expenses.11
Contrary to the aforesaid findings, the evidence shows that the Lawilao spouses did not make a
valid tender of payment and consignation of the balance of the contract price. As correctly found
by the Regional Trial Court:
As matters stand, no valid tender of payment and/or consignation of the P150,000.00 which
the Appellant (Lawilaos) still owes the Appellee (Benos) has been effected by the former. The
amount of P159,000.00 deposited with the MCTC is in relation to Civil Case No. 310 earlier
dismissed by said court, and not to the instant action. Hence, this Court cannot automatically
apply such sum in satisfaction of the aforesaid debt of the Appellant and order the Appellee
creditor to accept the same.12 (Emphasis supplied)
The Lawilao spouses did not appeal said finding, and it has become final and binding on them.
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. Thus
Tender of payment is the manifestation by debtors of their desire to comply with or to pay
their obligation. If the creditor refuses the tender of payment without just cause, the debtors
are discharged from the obligation by the consignation of the sum due. Consignation is made
by depositing the proper amount to the judicial authority, before whom the tender of payment
and the announcement of the consignation shall be proved. All interested parties are to be
notified of the consignation. Compliance with these requisites is mandatory.13(Emphasis
supplied)
In the instant case, records show that the Lawilao spouses filed the petition for consignation
against the bank in Civil Case No. 310 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, which provide:
Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation,
with the payment of damages in either case. He may also seek rescission, even after he has
chosen fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the
fixing of a period.
This is understood to be without prejudice to the rights of third persons who have acquired
the thing, in accordance with Articles 1385 and 1388 of the Mortgage Law.
Art. 1592. In the sale of immovable property, even though it may have been stipulated that
upon failure to pay the price at the time agreed upon the rescission of the contract shall of
right take place, the vendee may pay, even after the expiration of the period, as long as no
demand for rescission of the contract has been made upon him either judicially or by a
notarial act. After the demand, the court may not grant him a new term.
In the instant case, while the Benos spouses did not rescind the Pacto de Retro Sale through a
notarial act, they nevertheless rescinded the same in their Answer with Counterclaim where they
stated that:
14. Plaintiffs did not perform their obligation as spelled out in the Pacto de Retro Sale
(ANNEX "A"), particularly the assumption of the obligation of defendants to the Rural Bank of
Bontoc. Defendants were the ones who paid their loan through their son, ZALDY BENOS. As
a result, ANNEX "A" is rendered null and of no effect. Therefore, the VENDEE a retro who is
one of plaintiffs herein cannot consolidate her ownership over the property subject of the null
and ineffective instrument.
15. Since plaintiffs did not perform their corresponding obligation under ANNEX "A",
defendants have been all too willing to return the amount of ON[E] HUNDRED FIFTY
THOUSAND PESOS (P150,000.00) and reasonable interest thereon to plaintiffs. But
plaintiffs refused to accept the same.
With the filing of this answer, defendants pray that this serves as a notice of tender of
payment, and they shall consign the amount with the proper court as soon as it is legally
feasible.14
They also prayed that the Municipal Circuit Trial Court render judgment "[d]eclaring the Pacto de
Retro Sale rescinded or ineffective or void for lack of, or insufficient consideration."15
In Iringan v. Court of Appeals,16 we ruled that "even a crossclaim found in the Answer could
constitute a judicial demand for rescission that satisfies the requirement of the law." Similarly,
the counterclaim of the Benos spouses in their answer satisfied the requisites for the judicial
rescission of the subject Pacto de Retro Sale.
The Municipal Circuit Trial Court thus correctly dismissed the complaint for consolidation of
ownership filed by the Lawilao spouses for their failure to comply with the conditions of the
Pacto de Retro Sale. Nevertheless, it refused to declare the rescission of the Pacto de Retro
Sale as prayed for in the counterclaim of the Benos spouses, stating that:
How about the other obligations and/or rights owing to either party by virtue of the Pacto de
Retro Sale? This, the court opines that it can not delve into without overstepping the limits of
his functions there being appropriate remedies. It is hornbook in our jurisprudence that a

right in law may be enforced and a wrong way be remedied but always through the
appropriate action.17
The issue of rescission having been put in issue in the answer and the same having been
litigated upon without objections by the Lawilao spouses on grounds of jurisdiction, the
Municipal Circuit Trial Court should have ruled on the same and wrote finis to the controversy.
Thus, as a necessary consequence of its ruling that the Lawilao spouses breached the terms of
the Pacto de Retro Sale, the Municipal Circuit Trial Court should have rescinded the Pacto de
Retro Sale and directed the Benos spouses to return P150,000.00 to the Lawilao spouses,
pursuant to our ruling in Cannu v. Galang,18 to wit:
Petitioners maintain that inasmuch as respondents-spouses Galang were not granted the
right to unilaterally rescind the sale under the Deed of Sale with Assumption of Mortgage,
they should have first asked the court for the rescission thereof before they fully paid the
outstanding balance of the mortgage loan with the NHMFC. They claim that such payment is
a unilateral act of rescission which violates existing jurisprudence.
In Tan v. Court of Appeals, this court said:
. . . [T]he power to rescind obligations is implied in reciprocal ones in case one of the
obligors should not comply with what is incumbent upon him is clear from a reading
of the Civil Code provisions. However, it is equally settled that, in the absence of a
stipulation to the contrary, this power must be invoked judicially; it cannot be
exercised solely on a partys own judgment that the other has committed a breach of
the obligation. Where there is nothing in the contract empowering the petitioner to
rescind it without resort to the courts, the petitioners action in unilaterally terminating
the contract in this case is unjustified.
It is evident that the contract under consideration does not contain a provision authorizing its
extrajudicial rescission in case one of the parties fails to comply with what is incumbent upon
him. This being the case, respondents-spouses should have asked for judicial intervention to
obtain a judicial declaration of rescission. Be that as it may, and considering that
respondents-spouses Answer (with affirmative defenses) with Counterclaim seeks for the
rescission of the Deed of Sale with Assumption of Mortgage, it behooves the court to settle
the matter once and for all than to have the case re-litigated again on an issue already heard
on the merits and which this court has already taken cognizance of. Having found that
petitioners seriously breached the contract, we, therefore, declare the same is rescinded in
favor of respondents-spouses.
As a consequence of the rescission or, more accurately, resolution of the Deed of Sale with
Assumption of Mortgage, it is the duty of the court to require the parties to surrender
whatever they may have received from the other. The parties should be restored to their
original situation.
The record shows petitioners paid respondents-spouses the amount of P75,000.00 out of the
P120,000.00 agreed upon. They also made payments to NHMFC amounting to P55,312.47.
As to the petitioners alleged payment to CERF Realty of P46,616.70, except for petitioner
Leticia Cannus bare allegation, we find the same not to be supported by competent
evidence. As a general rule, one who pleads payment has the burden of proving it. However,
since it has been admitted in respondents-spouses Answer that petitioners shall assume the
second mortgage with CERF Realty in the amount of P35,000.00, and that Adelina Timbang,
respondents-spouses very own witness, testified that same has been paid, it is but proper to
return this amount to petitioners. The three amounts total P165,312.47 -- the sum to be
returned to petitioners.
WHEREFORE, the petition is GRANTED. The Decision dated December 5, 2005 and
Resolution dated March 17, 2006 of the Court of Appeals in CA-G.R. SP No. 78845, affirming
the Judgment dated July 1, 2003 of the Regional Trial Court of Bontoc, Mountain Province,
Branch 35, in Civil Case No. 1091, are REVERSED and SET ASIDE. The Decision dated

November 14, 2002 of the Municipal Circuit Trial Court of Bauko, Mountain Province in Civil
Case No. No. 314 dismissing respondents complaint for consolidation of ownership and
damages is REINSTATED WITH THE MODIFICATION that the Pacto de Retro Sale dated
February 11, 1999 is declared rescinded and petitioners are ordered to return the amount of
P150,000.00 to respondents. No costs.
SO ORDERED.
B.E. SAN DIEGO, INC., petitioner,
vs.
ROSARIO T. ALZUL, respondent.
DECISION
VELASCO, JR., J.:
The Case
1
This Petition for Review on Certiorari under Rule 45 questions the February 18, 2005
Decision2 of the Court of Appeals (CA) in CA-G.R. SP No. 81341, which granted respondent
Alzul the right to pay the balance of the purchase price within five (5) days from receipt of the
CA Decision despite the lapse of the original period given to said party through the final
Resolution of this Court in an earlier case. The CA ruling reversed the September 18, 2003
Resolution3 and December 2, 2003 Order4 of the Office of the President (OP) in O.P. Case No.
01-1-097, which upheld the dismissal of respondent Alzuls complaint for consignation and
specific performance before the Housing and Land Use Regulatory Board (HLURB) in HLURB
Case No. REM-A-99097-0167. Likewise challenged is the August 31, 2005 CA
Resolution5 rejecting petitioners Motion for Reconsideration.
The Facts
The facts culled by the CA are as follows:
On February 10, 1975, [respondent] Rosario T. Alzul purchased from [petitioner] B.E. San
Diego, Inc. four (4) subdivision lots with an aggregate area of 1,275 square meters located at
Aurora Subdivision, Maysilo, Malabon. These lots, which are now subject of this petition, were
bought through installment under Contract to Sell No. 867 at One Hundred Pesos (100.00)
per square meter, with a downpayment [sic] of Twelve Thousand Seven Hundred Fifty Pesos
(12,750.00), and monthly installments of One Thousand Two Hundred Forty-Nine Pesos
(1,249.50). The interest agreed upon was 12 percent (12%) per annum until fully paid, thus,
the total purchase price was Two Hundred Thirty Seven Thousand Six Hundred Sixty Pesos
(237,660.00).
[Respondent] took immediate possession of the subject property, setting up a perimeter fence
and constructing a house thereon.
On July 25, 1977, [respondent] signed a "Conditional Deed of Assignment and Transfer of
Rights" which assigned to a certain Wilson P. Yu her rights under the Contract to Sell.
[Petitioner] was notified of the execution of such deed. Later on, the Contract to Sell in
[respondents] name was cancelled, and [petitioner] issued a new one in favor of Yu although it
was also denominated as "Contract to Sell No. 867".
On July 4, 1979, [respondent] informed [petitioner] about Yus failure and refusal to pay the
amounts due under the conditional deed. She also manifested that she would be the one to pay
the installments due to respondent on account of Yus default.
On August 25, 1980, [respondent] commenced an action for rescission of the conditional deed
of assignment against Yu before the Regional Trial Court of Caloocan City. Subsequently, on

September 30, 1985, [respondent] caused the annotation of notices of lis pendens on the titles
covering the subject lots.
The trial court ruled in [respondents] favor in the rescission case. The decision was even
affirmed by this [appellate] Court. Yu brought his cause before the Supreme Court in a Petition
for Review, but this was likewise denied.
On February 17, 1989, [petitioner] notified [respondent] that Contract to Sell No. 867 was
declared rescinded and cancelled. On April 28, 1989, the subject lots were sold to spouses
Carlos and Sandra Ventura who were allegedly surprised to find the annotation of lis pendens in
their owners duplicate title.
On May 8, 1990, the Ventura spouses filed an action for Quieting of Title with Prayer for
Cancellation of Annotation and Damages before the Regional Trial Court of Malabon. The trial
court ruled in favor of the Ventura spouses. On appeal before this [appellate] Court, however,
the decision was reversed on November 27, 1992, as follows:
"WHEREFORE, the appealed decision is hereby REVERSED and SET ASIDE, and the
complaint therein is ordered dismissed. Transfer Certificates of Title Nos. N-1922, N-1923, N1924, and N-1925, all of the Register of Deeds of Metro Manila, District III, Malabon Branch, in
the names of plaintiffs-appellees Carlos N. Ventura and Sandra L. Ventura are hereby declared
null and void, and the titles of ownership reinstated in the name of B.E. San Diego, Inc. with the
corresponding notices of lis pendens therein annotated in favor of defendant-appellant until
such time that ownership of the subject parcels of land is transferred to herein defendantappellant Rosario Alzul. Costs against plaintiff-appellees.
SO ORDERED."
Upon filing of an appeal to the Supreme Court docketed as GR No. 109078, the above decision
was affirmed on December 26, 1995. A motion for reconsideration was filed, but this was denied
by the Highest Tribunal on February 5, 1996.
On June 17, 1996, a resolution was issued by the Supreme Court, ordering, as follows:
"We, however, agree with the observation made by movants that no time limit was set by the
respondent Court of Appeals in its assailed Decision for the private respondent herein, Rosario
Alzul, to pay B.E. San Diego, Inc. the original owner of the properties in litigation. To rectify such
oversight, private respondent Rosario T. Alzul is hereby given a non-extendible period of thirty
(30) days from entry of judgment, within which to make full payment for the properties in
question. xxx" (Emphasis supplied.)
On July 12, 1996, an Entry of Judgment was issued. In an attempt to comply with the Supreme
Courts directive, herein [respondent] tried to serve payment upon [petitioner] on August 29,
1996, August 30, 1996 and September 28, 1996. On all these dates, however, [petitioner]
allegedly refused to accept payment from [respondent].
On November 11, 1996, [respondent] filed a Manifestation in GR No. 109078 informing the
Supreme Court that [petitioner], on three (3) occasions, refused to accept [her] payment of the
balance in the amount of 187,380.00. On January 29, 1997, a Resolution was issued by the
Supreme Court referring the case to the court of origin for appropriate action, on account of
[respondents] manifestation.
On October 21, 1997, [respondents] counsel wrote a letter to [petitioner] citing the latters
refusal to accept her payment on several occasions. It was also mentioned therein that due to
its refusal, [respondent] would just consign the balance due to [petitioner] before the proper
judicial authority.

On January 14, 1998, a reply was sent by [petitioner] through a certain Flora San Diego.
[Respondents] request was rejected on account of the following:
1. We have long legally rescinded the sale in her favor in view of her failure to pay the monthly
amortization as per contract.
2. She sold her rights to Mr. Wilson Yu who failed to pay his monthly amortizations, too.
3. We are not and have never been a part of the case you are alluding to hence we cannot be
bound by the same.
4. The property in question is now under process to be reconveyed to us as ordered by the
court by virtue of a compromised (sic) agreement entered into in Civil Case No. 2655 MN of the
Malabon RTC Branch entitled Spouses Carlos Ventura and Sandra Ventura vs. B.E. San Diego,
Inc. xxx
Thinking that an action for consignation alone would not be sufficient to allow for the execution
of a final judgment in her favor, [respondent] decided to file an action for consignation and
specific performance against [petitioner] before the Housing and Land Use Regulatory Board on
March 12, 1998. The complaint, docketed as REM-031298-10039, prayed that a) [respondent]
be considered to have fully paid the total purchase price of the subject properties; b) TCT Nos.
N-155545 to 48 which were declared void in CA GR No. L-109078 be cancelled; c) new
certificates of title over the subject properties be issued in the name of [respondent]; and d)
[petitioner] be ordered to reimburse [respondent] the sum of Fifty Thousand Pesos
(50,000.00) as attorneys fees and litigation expenses.
On July 12, 1999, a decision was rendered by the HLURB through Housing and Land Use
Arbiter Dunstan T. San Vicente. It was held, thus:
"The purported "consignation" in this case is thus of no moment, inasmuch as the amount
allegedly due was not even deposited or placed at the disposal of this Office by the
complainant.
In any event, we agree with [petitioner] that even if the complainant had actually made the
consignation of the amount, such consignation is still ineffective and void for having been done
long after the expiration of the non-extendible period set forth in the 17 June 1996 Supreme
Court Resolution that expired on 20 September 1996.
WHEREFORE, Premises Considered, a judgment is hereby rendered DISMISSING the
complaint. Cost against complainant.
IT (sic) SO ORDERED."
Aggrieved by the above decision, [respondent] filed a Petition for Review before the HLURBs
First Division. On March 17, 2000, a decision was rendered dismissing the petition for lack of
merit, and affirming the decision dated July 12, 1999. [Respondent] filed a Motion for
Reconsideration, but this was denied on July 31, 2001.
[Respondent] then filed an appeal to the Office of the President. This was, however, dismissed
on June 2, 2003 for having been filed out of time. Again, [respondent] moved for its
reconsideration. On September 18, 2003, the Office of the President gave due course to
[respondents] motion, and resolved the motion according to its merits. The single question
resolved was whether or not [respondents] offer of consignation was correctly denied by the
HLURB. Said office ruled in the affirmative, and We quote:
"From the foregoing, it is evident that there was no valid consignation of the balance of the
purchase price. The 30-day non-extendible period set forth in the 17 June 1996 resolution had
already expired on 20 September 1996. The HLURB is therefore justified in refusing the

consignation, otherwise it would be accused of extending the period beyond that provided by
the Supreme Court. A valid consignation is effected when there is an actual consignation of the
amount due within the prescribed period (St. Dominic Corporation vs. Intermediate Appellate
Court, 138 SCRA 242). x x x
WHEREFORE, premises considered, the appeal is hereby DISMISSED for lack of merit. x x x"
[Respondent] filed a Motion for Reconsideration [of] the above Resolution, but this was denied
with finality on December 2, 2003.6
The Ruling of the Court of Appeals
Respondent Alzul brought before the CA a petition for certiorari docketed as CA-G.R. SP No.
67637, ascribing grave abuse of discretion to the OP in dismissing her appeal in O.P. Case No.
01-1-097 and affirming the March 17, 2000 Decision7 and July 31, 2001 Resolution8 of the
HLURB First Division in HLURB Case No. REM-A-990907-0167.
On February 18, 2005, the CA rendered its assailed Decision reversing the September 18, 2003
Resolution and December 2, 2003 Order of the OP, the fallo of which reads:
WHEREFORE, in the higher interest of justice, the assailed Decision, Resolution and Order
dated March 17, 2000, September 18, 2003 and December 2, 2003, respectively, are
hereby REVERSED and SET ASIDE. Accordingly, [respondent Alzul] is hereby ordered to pay
[petitioner B.E. San Diego, Inc.] the balance due for the sale of the subject four parcels of land
within five (5) days from receipt of this decision. [Petitioner B.E. San Diego, Inc.], on the other
hand, is ordered to accept such payment from [respondent Alzul], after which, the corresponding
Deed of Sale must be issued.
SO ORDERED.9
The CA agreed with the HLURB that no valid consignation was made by respondent but found
that justice would be better served by allowing respondent Alzul to effect the consignation, albeit
belatedly. It cited the respondents right over the disputed lots as confirmed by this Court in G.R.
No. 109078, which, if taken away on account of the delay in completing the payment, would
amount to a grave injustice.
Moreover, the CA pointed out that respondents counsel concededly lacked the vigilance and
competence in defending his clients right when he failed to consign the balance on time;
nonetheless, such may be disregarded in the interest of justice. It considered the failure of
respondents counsel to avail of the remedy of consignation as a procedural lapse, citing the
principle that where a rigid application of the rules will result in a manifest failure or miscarriage
of justice, technicalities can be ignored.
A copy of the February 18, 2005 CA Decision was received by respondent Alzul through her
counsel on February 24, 2005.
On March 4, 2005, respondent filed a Compliance and Motion for Extension of Time to Comply
with the Decision of the [CA]10 praying that she be given an extension of ten (10) days or from
March 2 to 11, 2005 to comply with the CA Decision. On the other hand, on March 8, 2005,
petitioner filed its Motion for Reconsideration with Opposition to Petitioners "Motion for
Extension of Time to Comply with the Decision of the [CA]."11
Through its assailed August 31, 2005 Resolution, the CA denied petitioners Motion for
Reconsideration, and finding that respondent duly exerted efforts to comply with its Decision
and a valid consignation was made by respondent, it granted the requested 10-day extension of
time to comply with the February 18, 2005 Decision and her motion for consignation. The fallo of
said Resolution reads:

IN VIEW OF THE FOREGOING, the motion for extension to comply with the Decision is hereby
GRANTED, the motion for reconsideration is DENIED and the motion for consignation is
GRANTED. [Petitioner] B.E. San Diego, Inc. is hereby ordered to receive the payment of
[respondent] Rosario T. Alzul and to issue, in her favor, the corresponding Deed of Sale.12
The Issues
Hence, before us is the instant petition with the following issues:
1. Whether or not the Court of Appeals, in issuing the assailed 18 February 2005 Decision and
31 August 2005 Resolution in CA-G.R. SP No. 81341, has decided questions of law in a way
not in accord with law and with the applicable decisions of the Honorable Court;
2. Whether or not the Court of Appeals committed patent grave abuse of discretion and/or acted
without or in excess of jurisdiction in granting respondent Alzuls subsequent motion for
extension of time to comply with the 18 February 2005 decision and motion for consignation;
and
3. Whether or not the 18 February 2005 Decision and 31 August 2005 Resolution of the Court of
Appeals in CA-G.R. SP No. 81341 ought to be annulled and set aside, for being contrary to law
and jurisprudence.13
The Courts Ruling
On the procedural issue, petitioner B.E. San Diego, Inc. assails the sufficiency of respondent
Alzuls CA petition as the latter, in violation of the rules, allegedly lacked the essential and
relevant pleadings filed with the HLURB and the OP.
Section 6 of Rule 43, 1997 Rules of Civil Procedure pertinently provides:
SEC. 6. Contents of the petition.The petition for review shall x x x (c) be accompanied by a
clearly legible duplicate original or a certified true copy of the award, judgment, final order or
resolution appealed from, together with certified true copies of such material portions of the
record referred to therein and other supporting papers; x x x (Emphasis supplied.)
The above proviso explicitly requires the following to be appended to a petition: 1) clearly legible
duplicate original or a certified true copy of the award, judgment, final order, or resolution
appealed from; 2) certified true copies of such material portions of the record referred to in the
petition; and 3) other supporting papers.
Obviously, the main reason for the prescribed attachments is to facilitate the review and
evaluation of the petition by making readily available to the CA all the orders, resolutions,
decisions, pleadings, transcripts, documents, and pieces of evidence that are material and
relevant to the issues presented in the petition without relying on the case records of the lower
court. The rule is the reviewing court can determine the merits of the petition solely on the basis
of the submissions by the parties14 without the use of the records of the court a quo. It is a fact
that it takes several months before the records are elevated to the higher court, thus the
resulting delay in the review of the petition. The attachment of all essential and necessary
papers and documents is mandatory; otherwise, the petition can be rejected outright under Sec.
7 of Rule 43 of the Rules of Court, which provides:
Effect of failure to comply with requirements.The failure of the petitioner to comply with any of
the foregoing requirements regarding the payment of the docket and other lawful fees, the
deposit for costs, proof of service of the petition, and the contents of and the documents which
should accompany the petition shall be sufficient ground for the dismissal thereof.
To prevent premature dismissals, the requirements under Sec. 6 on the contents of the petition
have to be elucidated.

First, there can be no question that only the award, judgment, or final order or resolution issued
by the lower court or agency and appealed from has to be certified as true.
The second set of attachments refers to the "certified true copies of such material portions of
the record referred to therein."
Material is defined as "important; more or less necessary; having influence or effect; going to
the merits; having to do with matter, as distinguished from form."15 Thus, material portions of the
records are those parts of the records that are relevant and directly bear on the issues and
arguments raised and discussed in the petition. They may include any of the pleadings that are
subject of any issue, documentary evidence, transcripts of testimonial evidence, and parts of the
records pertinent and relevant to the grounds supporting the petition. The attachment of the
material portions is subject to the qualification that these are referred to or cited in the petition.
Thus, only the material parts specified in the petition have to be appended and that would be
sufficient compliance with the rule as to form.
It would be prudent however for the petitioner to attach all parts of the records which are
relevant, necessary, or important in whatever way to be able to reach the resolution of the
issues of the petition. The availability of such documents to the ponente and members of a
Division can easily provide the substance and support to the merits of the grounds put forward
by the petitioner. Moreover, the processing time for the review and resolution of the petition is
greatly abbreviated, thereby obviating intolerable delays.
Lastly, it has to be explained whether the material portions of the records have to be certified as
true by the clerk of court or his/her duly authorized representative as provided in Sec. 6 of Rule
43. If strictly required, the rule to require attachment of certified true copies of the material
portions will surely make the preparation of the petition more tedious, cumbersome, and
expensive. It should therefore be construed that merely clear and legible copies of the material
portions will suffice. The rules on the different modes of appeal from the lower courts or quasijudicial agencies to the CA reveal that it is only Rule 43 that specifically states that the material
portions to be appended to the petition should be certified true copies. Rule 41 of course does
not require attachment of the pertinent records since the entire records are elevated to the CA.
Rule 42 on petition for review from the trial court in aid of its appellate jurisdiction to the CA
speaks of plain copies of the material portions of the record as would support the allegations of
the petition.16 Even Rule 45 on appeal by certiorari from the CA to this Court simply speaks of
material portions of the records without indicating that these should be certified true copies.
Rule 46 on original cases to this Court only requires plain copies of the material portions of the
records. Finally, Rule 65 on special civil actions requires only copies of relevant and pertinent
pleadings and documents.
From the foregoing premises, the inescapable conclusion is that only plain and clear copies of
the material portions of the records are required under Sec. 3 of Rule 43. This finding is
buttressed by our ruling in Cadayona v. CA, where it was held that only judgments or final
orders of the lower courts are needed to be certified true copies or duplicate originals.17 There is
no plausible reason why a different treatment or stricter requirement should be applied to
petitions under Rule 43.
The last requirement is the attachment of "other supporting papers." Again, it is only in Rule 43
that we encounter the requirement of annexing "supporting papers" to the petition. This can be
interpreted to mean other documents, pictures, and pieces of evidence not forming parts of the
records of the lower court or agency that can bolster and shore up the petition. While not so
specified in Sec. 3 of Rule 43, it is inarguable that said papers must also be relevant and

material to the petition; otherwise, the attachments would be mere surplusages and devoid of
use and value.
Petitioner claims respondents petition in CA-G.R. SP No. 81341 failed to attach material
documents of the records of the HLURB and the OP. They cry foul that none of the pleadings
filed with the HLURB and the OP found their way into the CA petition. It prays that the CA
petition should have been dismissed under Sec. 7 of Rule 43 due to the lack of needed
attachments.
Petitioners postulation must fail.
Sec. 7 of Rule 43 does not prescribe outright rejection of the petition if it is not accompanied by
the required documents but simply gives the discretion to the CA to determine whether such
breach constitutes a "sufficient ground" for dismissal. Apparently, petitioner was not able to
convince the CA that the alleged missing attachments deprived said court of the full opportunity
and facility in examining and resolving the petition. It has not been satisfactorily shown that the
pleadings filed by petitioner with the quasi-judicial agencies have material bearing or importance
to the CA petition. Such pleadings could have been attached to the comment of respondent and
hence, no prejudice would be suffered. Thus, the CA did not exercise its discretion in an
arbitrary or oppressive manner by giving due course to the petition.
In addition, it was noted in Cusi-Hernandez v. Diaz that the CA Revised Internal Rules provide
certain flexibility in the submission of additional documents:
When a petition does not have the complete annexes or the required number of copies, the
Chief of the Judicial Records Division shall require the petitioner to complete the annexes or file
the necessary number of copies of the petition before docketing the case. Pleadings improperly
filed in court shall be returned to the sender by the Chief of the Judicial Records Division.18
In Rosa Yap Paras, et al. v. Judge Ismael O. Baldado, et al., the Court preferred the
determination of cases on the merits over technicality or procedural imperfections so that the
ends of justice would be served better, thus:
At the same time, the Rules of Court encourage a reading of the procedural requirements in a
manner that will help secure and not defeat justice. Thus:
Section 6. Construction.These Rules shall be liberally construed in order to promote their
objective of securing a just, speedy and inexpensive disposition of every action and proceeding.
As expressed in Alberto vs. Court of Appeals, "(w)hat should guide judicial action is the principle
that a party-litigant is to be given the fullest opportunity to establish the merits of his complaint
or defense rather than for him to lose life, liberty, honor or property on technicalities. x x x (T)he
rules of procedure should be viewed as mere tools designed to facilitate the attainment of
justice. Their strict and rigid application, which would result in technicalities that tend to frustrate
rather than promote substantial justice, must always be eschewed."19
Now we will address the main issuewhether respondent Alzul is still entitled to consignation
despite the lapse of the period provided by the Court in G.R. No. 109078 entitled Yu v. Court of
Appeals.
Petitioner stresses the fact that respondent Alzul did not comply with this Courts June 17, 1996
Resolution20 which gave a non-extendible period of thirty (30) days from entry of judgment within
which to make full payment for the subject properties. The entry of judgment shows that the
December 26, 1995 Resolution21 in G.R. No. 109078 became final and executory on July 2,
1996. Respondent Alzul received through counsel a copy of the entry of judgment on August 21,
1996. Thus, respondent had until September 20, 1996 within which to make the full payment.

After three (3) unsuccessful tenders of payment, respondent Alzul made no consignation of the
amount to the court of origin. It was only on March 12, 1998 or about a year and a half later that
respondent offered to consign said amount in an action for consignment before the HLURB.
Relying on the case of St. Dominic Corporation v. Intermediate Appellate Court,22 petitioner
strongly asserts that upon its refusal to accept the tendered payment, respondent ought to have
consigned it with the court of origin also within the 30-day period or within a reasonable time
thereafter. Respondent failed to do this as she waited for a year and a half before instituting the
instant action for specific performance and consignment before the HLURB.
Moreover, petitioner argues that respondents delay of a year and a half to pursue full payment
must be regarded as a waiver on her part to claim whatever residual remedies she might still
have for the enforcement of the June 17, 1996 Resolution in G.R. No. 109078.
Petitioner further contends that even if the action before the HLURB was made on time, that is,
within the 30-day period, still it is fatally defective as respondent did not deposit any amount with
the HLURB which violated the rules for consignment which require actual deposit of the amount
allegedly due with the proper judicial authority.
Premised upon these considerations, petitioner faults the appellate court for its grant of
respondents petition for review which nullified the denial by the HLURB Arbiter, HLURB First
Division, and the OP of respondents action.
On the other hand, respondent contends that the June 17, 1996 Resolution of this Court should
not be construed against her inability to effect payment due to the obstinate and unjust refusal
by petitionera supervening circumstance beyond her control. Respondent underscores that
within the 30-day period, she repeatedly attempted to effect the payment to no avail. Moreover,
the much delayed response of petitioner embodied in its January 14, 1998 letter23 confirming its
refusal was based on untenable, baseless, and contrived grounds.
Moreover, she argues that the December 26, 1995 Resolution in G.R. No. 109078 granting her
proprietary rights over the subject lots has long become final and executory.
Anent the issue of laches and estoppel, respondent strongly contends that such do not apply in
the instant case as incontrovertible circumstances show that she has relentlessly pursued the
protection and enforcement of her rights over the disputed lots for over a quarter of a century.
After a careful study of the factual milieu, applicable laws, and jurisprudence, we find the petition
meritorious.
Respondent Alzul was accorded legal rights over subject properties
In G.R. No. 109078, finding no reversible error on the part of the CA, we denied Wilson P. Yus
petition and affirmed the appellate courts ruling that as between Wilson P. Yu, the Ventura
spouses, petitioner B.E. San Diego, Inc., and respondent Alzul, respondent has inchoate
proprietary rights over the disputed lots. We upheld the CA ruling declaring as "null and void"
the titles issued in the name of the Ventura spouses and reinstating them in the name of B.E.
San Diego, Inc., with the corresponding notices of lis pendens annotated on them in favor of
respondent until such time that ownership of the subject parcels of land is transferred to
respondent Rosario Alzul.
It is thus clear that we accorded respondent Alzul expectant rights over the disputed lots, but
such is conditioned on the payment of the balance of the purchase price. Having been
conceded such rights, respondent had the obligation to pay the remaining balance to vest
absolute title and rights of ownership in his name over the subject properties.

In our June 17, 1996 Resolution, we clearly specified thirty (30) days from entry of judgment for
respondent to promptly effect the full payment of the balance of the purchase price for the
subject properties, thus:
We however agree with the observation made by movants that no time limit was set by the
respondent Court of Appeals in its assailed Decision for the private respondent herein, Rosario
Alzul, to pay B.E. San Diego, Inc., the original owner of the properties in litigation. To rectify
such oversight, private respondent Rosario T. Alzul is hereby given a non-extendible period of
thirty (30) days from entry of judgment, within which to make full payment for the properties in
question.24 (Emphasis supplied.)
The non-compliance with our June 17, 1996 Resolution is fatal to respondent Alzuls action for
consignation and specific performance
Unfortunately, respondent failed to effect such full payment of the balance of the purchase price
for the subject properties.
No consignation within the 30-day period or at a reasonable time thereafter
It is clear as day that respondent did not attempt nor pursue consignation within the 30-day
period given to her in accordance with the prescribed legal procedure. She received a copy of
the entry of judgment on August 21, 1996 and had 30 days or until September 20, 1996 to pay
the balance of the purchase price to petitioner. She made a tender of payment on August 29,
1996, August 30, 1996, and September 28, 1996, all of which were refused by petitioner
possibly because the latter is of the view that it is not bound by the November 27, 1992 Decision
in CA-G.R. CV No. 33619 nor the December 26, 1995 Resolution in G.R. No. 109078, and the
fact that respondent has forfeited her rights to the lots because of her failure to pay the monthly
amortizations.
It must be borne in mind however that a mere tender of payment is not enough to extinguish an
obligation. In Meat Packing Corporation of the Philippines v. Sandiganbayan, we distinguished
consignation from tender of payment and reiterated the rule that both must be validly done in
order to effect the extinguishment of the obligation, thus:
Consignation is the act of depositing the thing due with the court or judicial authorities whenever
the creditor cannot accept or refuses to accept payment, and it generally requires a prior tender
of payment. It should be distinguished from tender of payment. Tender is the antecedent of
consignation, that is, an act preparatory to the consignation, which is the principal, and from
which are derived the immediate consequences which the debtor desires or seeks to obtain.
Tender of payment may be extrajudicial, while consignation is necessarily judicial, and the
priority of the first is the attempt to make a private settlement before proceeding to the
solemnities of consignation. Tender and consignation, where validly made, produces the effect
of payment and extinguishes the obligation.25 (Emphasis supplied.)
There is no dispute that a valid tender of payment had been made by respondent. Absent
however a valid consignation, mere tender will not suffice to extinguish her obligation and
consummate the acquisition of the subject properties.
In St. Dominic Corporation involving the payment of the installment balance for the purchase of
a lot similar to the case at bar, where a period has been judicially directed to effect the payment,
the Court held that a valid consignation is made when the amount is consigned with the court
within the required period or within a reasonable time thereafter. We ruled as follows:
First of all, the decision of the then Court of Appeals which was promulgated on October 21,
1981, is quite clear when it ordered the payment of the balance of the purchase price for the
disputed lot within 60 days "from receipt hereof" meaning from the receipt of the decision by the

respondents. It is an admitted fact that the respondents received a copy of the decision on
October 30, 1981. Hence, they had up to December 29, 1981 to make the payment. Upon
refusal by the petitioner to receive such payment, the proper procedure was for the respondent
to consign the same with the court also within the 60-day period or within a reasonable time
thereafter.26 (Emphasis supplied.)
The records also reveal that respondent failed to effect consignation within a reasonable time
after the 30-day period which expired on September 20, 1996. Instead of consigning the amount
with the court of origin, respondent filed her November 11, 1996 Manifestation informing this
Court of petitioners unjust refusal of the tender of payment. We acted favorably to it by issuing
our January 28, 1997 Resolution which ordered, thus:
Considering the manifestation, dated November 11, 1996, filed by counsel for private
respondent Rosario T. Alzul, stating that private respondent tendered to B.E. San Diego, Inc. the
payment of the sum of P187,380.00 representing the balance of the purchase price of the
properties which are the subject of this litigation, but B.E. San Diego, Inc., refused to accept the
same, the Court resolved to REFER the case to the court of origin, for appropriate action.27
Respondent still failed to take the cue by her inaction to consign the amount with the court of
origin. Undoubtedly, pursuing the action for consignation on March 12, 1998 or over a year after
the Court issued its January 28, 1997 Resolution is way beyond a "reasonable time thereafter."
Indeed, we have accorded respondent, through said Resolution, all the opportunity to pursue
consignation with the court of origin and yet, respondent failed to make a valid consignation.
This is already inexcusable neglect on the part of respondent.
No valid consignation made
We agree with petitioners assertion that even granting arguendo that the instant case for
consignation was instituted within the 30-day period or within a reasonable time thereafter, it
would still not accord respondent relief as no valid consignation was made. Certainly, the
records show that there was no valid consignation made by respondent before the HLURB as
she did not deposit the amount with the quasi-judicial body as required by law and the rules.
Pertinently, the first paragraph of Article 1258 of the Civil Code provides that "[c]onsignation
shall be made bydepositing 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 (emphasis supplied)."
It is true enough that respondent tendered payment to petitioner three (3) times through a
Solidbank Managers Check No. 1146 in the amount of PhP 187,38028 on August 29 and 30,
1996 and September 28, 1996. It is true likewise that petitioner refused to accept it but not
without good reasons. Petitioner was not impleaded as a party by the Ventura spouses in the
Malabon City RTC case for quieting of title against Wilson Yu nor in the appealed case to the
CA nor in G.R. No. 109078.
Petitioner is of the view that there was no jurisdiction acquired over its person and hence, it is
not bound by the final judgment and June 17, 1996 Resolution in G.R. No. 109078. Secondly,
petitioner believed that respondent Alzul has lost her rights over the subject lot by the rescission
of the sale in her favor due to the latters failure to pay the installments and also as a result of
her transferees failure to pay the agreed amortizations. And even in the face of the refusal by
petitioner to accept tender of payment, respondent is not left without a remedy. It is basic that
consignation is an available remedy, and respondent, with the aid of her counsel, could have
easily availed of such course of action sanctioned under the Civil Code.

Considering the tenor of our June 17, 1996 Resolution, respondent ought to have consigned the
amount with the court of origin within the non-extendible period of 30 days that was accorded
her or within a reasonable time thereafter.
As cited earlier, consignation is the act of depositing the thing due with the court or judicial
authorities whenever the creditor cannot accept or refuses to accept payment and it generally
requires a prior tender of payment.29 It is of no moment if the refusal to accept payment be
reasonable or not. Indeed, consignation is the remedy for an unjust refusal to accept payment.
The first paragraph of Art. 1256 of the Civil Code precisely provides that "[i]f the creditor to
whom tender of payment has been made refuses without just cause to accept it, the debtor
shall be released from responsibility by the consignation of the thing or sum
due (emphasis supplied)."
The proper and valid consignation of the amount due with the court of origin, which shall
judicially pronounce the validity of the consignation and declare the debtor to be released from
his/her responsibility, shall extinguish the corresponding obligation.
Moreover, 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 s/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 had 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 of the action.30
Respondent did not comply with the provisions of law particularly with the fourth and fifth
requirements specified above for a valid consignation. In her complaint for consignation and
specific performance, respondent only prayed that she be allowed to make the consignation
without placing or depositing the amount due at the disposal of the court of origin. Verily,
respondent made no valid consignation.
The rights of petitioner and respondent over the 1,275 square meter lot subject of this petition
will be determined by the significance and effects of the December 26, 1995 Resolution
rendered in G.R. No. 109078 entitled Yu v. Court of Appeals.31
The subject matter of G.R. No. 109078 is the November 27, 1992 Decision rendered in CA-G.R.
CV No. 33619 entitled Carlos N. Ventura and Sandra L. Ventura v. Rosario T. Alzul, et al., the
fallo of which reads:
WHEREFORE, the appealed decision is hereby REVERSED AND SET ASIDE, and the
complaint therein is ordered dismissed. Transfer Certificates of Title Nos. N-1922, N-1923, N1924, and N-1925, all of the Register of Deeds of Metro Manila, District III, Malabon Branch, in
the names of plaintiffs-appellees Carlos N. Ventura and Sandra L. Ventura are hereby declared
null and void, and the titles of ownership reinstated in the name of B.E. San Diego, Inc., with the
corresponding notices of lis pendens therein annotated in favor of defendant-appellant until
such time that ownership of the subject parcels of land is transferred to herein defendantappellant Rosario Alzul. Costs against plaintiff-appellees.
SO ORDERED.32
On December 26, 1995, this Court issued the Resolution in G.R. No. 109078 wherein it found
no reversible error in the actions of the CA in its aforequoted disposition in CA-G.R. CV No.
33619, and resolved to deny the petition for lack of merit. On February 5, 1996, this Court
denied with finality the Motion for Reconsideration filed by petitioner Wilson Yu.

However, on June 17, 1996, this Court, in resolving the Motion for Reconsideration of private
respondents Spouses Carlos and Sandra Ventura, granted respondent Alzul "a non-extendible
period of thirty (30) days from entry of judgment, within which to make full payment for the
properties in question."33
The question iscan the Court, the CA, or the Malabon City RTC order petitioner B.E. San
Diego, Inc. to accept the tender of payment made by respondent Alzul?
Definitely, they cannot. The reason is that petitioner was not impleaded as a party in the
Malabon City RTC civil case, CA-G.R. CV No. 33619, nor in G.R. No. 109078 and hence is not
under the jurisdiction of said courts. What were determined and decided in the CA Decision in
CA-G.R. CV No. 33619 were the annulment of the titles of spouses Carlos and Sandra Ventura,
the reinstatement of said titles to the name of petitioner, and the declaration that the ownership
of the lots subject of said titles will be transferred to respondent. There is no directive to
respondent granting her the right to pay the balance of the price to petitioner and, more
importantly, there is no order for petitioner to accept the payment. The dispositive or fallo of the
decision is what actually constitutes the judgment or resolution of the court that can be the
subject of execution. Where there is a conflict between the dispositive portion of the decision
and its body, the dispositive portion controls irrespective of what appears in the body of the
decision.34 Such being the case, petitioner is not duty bound to accept any tender of payment
from respondent precisely because such diktat is absent in the fallo of the CA Decision which
was affirmed by this Court in its December 26, 1995 Resolution in G.R. No. 109078.
The lacuna in the CA Decision was sought to be corrected in its June 17, 1996 Resolution in
G.R. No. 109078 where respondent was given "a non-extendible period of thirty (30) days from
entry of judgment, within which to make full payment for the properties in question." Pursuant to
this Resolution, what was established was the right of respondent to pay the balance of the
purchase price within 30 days. Again, the query iscan this Court, the CA, or the trial court
compel petitioner to accept the tender of payment from respondent?
The answer is no. The reason is obvious as jurisdiction was never acquired over the person of
petitioner. The action for quieting of title is characterized as quasi in rem. In Realty Sales
Enterprise, Inc. v. Intermediate Appellate Court, it was held that:
Suits to quiet title are not technically suits in rem, nor are they, strictly speaking, in personam,
but being against the person in respect of the res, these proceedings are characterized as quasi
in rem. (McDaniel v. McElvy, 108 So. 820 [1926].) The judgment in such proceedings is
conclusive only between the parties. (Emphasis supplied.)35
Not being impleaded as a necessary or indispensable party, petitioner is not bound by the
dispositions in the CA Decision in CA-G.R. CV No. 33619 and the Resolutions of this Court in
G.R. No. 109078. Moreover, there is no explicit and clear directive for petitioner to accept the
payment of the balance of the price.
It is for this reason that respondent cannot ask for a writ of execution from the trial court where
the complaint was originally instituted as said court has no jurisdiction over the person of
petitioner. Even if a writ is issued, it should conform to the judgment, and the fallo of the CA
Decision does not impose the duty or obligation on the part of petitioner to accept the payment
from respondent. It is the settled doctrine that a writ of execution must conform to the judgment
and if it is different from or exceeds the terms of the judgment, then it is a nullity.36
In addition, Sec. 10, Rule 39 provides the procedure for execution of judgments for specific acts,
thus:

Sec. 10. Execution of judgments for specific act.(a) Conveyance, delivery of deeds, or other
specific acts; vesting title.If a judgment directs a party to execute a conveyance of land or
personal property, or to deliver deeds or other documents, or to perform any other specific act in
connection therewith, and the party fails to comply within the time specified, the court may direct
the act to be done at the cost of the disobedient party by some other person appointed by the
court and the act when so done shall have like effect as if done by the party. If real or personal
property is situated within the Philippines, the court in lieu of directing a conveyance thereof
may by an order divest the title of any party and vest it in others, which shall have the force and
effect of a conveyance executed in due form of law.
The rule mentions the directive to a "party." It is therefore essential that the person tasked to
perform the specific act is impleaded as a party to the case. Otherwise, the judgment cannot be
executed. In the case at bar, petitioner should have been impleaded as a party so as to compel
it to accept payment and execute the deed of sale over the disputed lots in favor of respondent.
As petitioner was not impleaded as a party, then the CA Decision in CA-G.R. CV No. 33619 as
affirmed in G.R. No. 109078 cannot be enforced against it.
The cause of action available to respondent is to file an action for consignation against
petitioner which she did by registering a complaint for consignation before the HLURB on March
12, 1998. Unfortunately, it was filed way beyond the 30-day period which lapsed on September
20, 1996 or immediately thereafter. Because of the failure of respondent to effect payment to
petitioner within the 30-day period or soon thereafter, her rights to buy the disputed lots have
been forfeited, lost, and extinguished.
In St. Dominic Corporation, which is substantially similar to the case at bar, we explained the
procedure when a party is directed to pay the balance of the purchase price based on a court
decision, thus:
First of all, the decision of the then Court of Appeals which was promulgated on October 21,
1981, is quite clear when it ordered the payment of the balance of the purchase price for the
disputed lot within 60 days "from receipt hereof," meaning from the receipt of the decision by the
respondents. It is an admitted fact that the respondents received a copy of the decision on
October 30, 1981. Hence, they had up to December 29, 1981 to make the payment. Upon
refusal by the petitioner to receive such payment, the proper procedure was for the respondent
to consign the same with the court also within the 60-day period or within a reasonable time
thereafter. The fact that efforts were made by the petitioner to reach an agreement with the
respondents after the promulgation of the decision did not in anyway affect the finality of the
judgment. This was clearly emphasized in the order of the appellate court on May 6, 1982.
Secondly, even if we reckon the 60-day period from the date of the finality of the decision as
interpreted by the appellate court, such finality should be counted from March 5, 1982, which
was the date the decision became final as indicated in the entry of judgment and not from
August 26, 1982 which is the date the entry was made. The date of a finality of a decision is
entirely distinct from the date of its entry and the delay in the latter does not affect the effectivity
of the former as such is counted from the expiration of the period to appeal.37 x x x
In the aforecited case, the lot owner was made a party to the case and the judgment of the court
was for the plaintiff to pay to the lot owner the balance of the purchase price within 60 days from
receipt of the Decision. Even assuming arguendo that petitioner B.E. San Diego, Inc., though
not a party in the complaint for quieting of title, can be compelled to receive the purchase price,
still, the refusal to receive the money requires respondent Alzul to follow the procedure in St.
Dominic Corporation and consign the money with the court of origin. Having failed in this

respect, respondents rights to the property have been forfeited as a result of non-payment
within the prescribed time frame.
The CA relied on justice and equity in granting an additional period of five (5) days from receipt
of the February 18, 2005 Decision in CA-G.R. SP No. 81341 to pay the balance due for the sale
of the four lots.38 While we commiserate with the plight of respondent, the CA ruling will not
prevail over the established axiom that equity is applied only in the absence of and never
against statutory law or judicial rules of procedure.39 For all its conceded merits, equity is
available only in the absence of law and not as its replacement.40 Equity as an exceptional
extenuating circumstance does not favor, nor may it be used to reward, the indolent. This Court
will not allow a party, in guise of equity, to benefit from respondents own negligence.41
In the light of the foregoing considerations, we find that the grant of respondents petition in CAG.R. SP No. 81341 and the recognition of the belated consignation of the amount find no
support nor basis in law, rule, or jurisprudence. The CAs holding that the non-consignation of
the amount due is merely a procedural lapse on the part of respondents counsel is misplaced
and is contrary to settled jurisprudence. Plainly, respondents rights over the subject property
are now lost and forfeited.
Having resolved the core issue on the validity of the consignation, the Court sees no further
need to discuss the remaining issues raised in the petition.
Petitioner to reimburse payments
However, respondent had made payments over the subject properties based on her agreement
with petitioner. So as not to enrich itself at the expense of respondent, petitioner is obliged to
reimburse respondent whatever amount was paid by her in form of monthly amortizations. On
the other hand, if respondent is in possession of the subject properties, she and all persons
claiming under her should surrender the possession to petitioner.
WHEREFORE, the petition is GRANTED, the February 18, 2005 Decision and August 31, 2005
Resolution of the CA are REVERSED and SET ASIDE, and the September 18, 2003 Resolution
and December 2, 2003 Order of the OP are hereby REINSTATED. Petitioner is ORDERED to
reimburse respondent whatever amount the latter has paid for the subject properties per the
Contract to Sell No. 867. Petitioner is DECLARED to be the true and legal owner of Lots Nos. 5,
6, 7, and 8, Block 18, Aurora Subdivision, Maysilo, Malabon City. The Register of Deeds of
Manila, District III, Malabon City Branch is ORDERED to cancel Transfer Certificates of Title
Nos. N-1922, N-1923, N-1924, and N-1925 in the names of spouses Carlos N. Ventura and
Sandra L. Ventura and register the same in the name of petitioner. The lis pendens in favor of
respondent annotated on the Transfer Certificates of Title over the subject properties is hereby
LIFTED, and the Register of Deeds for Metro Manila, District III is DIRECTED to CANCEL said
lis pendens. Respondent and all persons claiming under her are ORDERED to vacate the
subject properties and surrender them to petitioner within sixty (60) days from finality of this
judgment. No pronouncement as to costs.
SO ORDERED.
SPOUSES OSCAR and THELMA CACAYORIN, Petitioners,
vs.
ARMED FORCES AND POLICE MUTUAL BENEFIT ASSOCIATION, INC., Respondent.
DECISION
DEL CASTILLO, J.:

Consignation is necessarily judicial. Article 1258 of the Civil Code specifically provides that
consignation shall be made by depositing the thing or things due at the disposal of judicial
authority. The said provision clearly precludes consignation in venues other than the courts.
Assailed in this Petition for Review on Certiorari1 are the September 29, 2005 Decision2 of the
Court of Appeals (CA) which granted the Petition for Certiorari in CA-G.R. SP No. 84446 and its
January 12, 2006 Resolution3denying petitioners' Motion for Reconsideration.4
Factual Antecedents
Petitioner Oscar Cacayorin (Oscar) is a member of respondent Armed Forces and Police Mutual
Benefit Association, Inc. (AFPMBAI), a mutual benefit association duly organized and existing
under Philippine laws and 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. He filed an
application with AFPMBAI to purchase a piece of property which the latter owned, specifically
Lot 5, Block 8, Phase I, Kalikasan Mutual Homes, San Pedro, Puerto Princesa City (the
property), through a loan facility.
On July 4, 1994, Oscar and his wife and co-petitioner herein, Thelma, on one hand, and the
Rural Bank of San Teodoro (the Rural Bank) on the other, executed a Loan and Mortgage
Agreement5 with the former as borrowers and the Rural Bank as lender, under the auspices of
Pag-IBIG or Home Development Mutual Funds Home Financing Program.
The Rural Bank issued an August 22, 1994 letter of guaranty6 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.
On the basis of the Rural Banks letter of guaranty, AFPMBAI executed in petitioners favor a
Deed of Absolute Sale,7 and a new title Transfer Certificate of Title No. 370178 (TCT No.
37017) was issued in their name, with the corresponding annotation of their mortgage
agreement with the Rural Bank, under Entry No. 3364.9
Unfortunately, the Pag-IBIG loan facility did not push through and the Rural Bank closed and
was placed under receivership by the Philippine Deposit Insurance Corporation (PDIC).
Meanwhile, AFPMBAI somehow was able to take possession of petitioners loan documents and
TCT No. 37017, while petitioners were unable to pay the loan/consideration for the property.
AFPMBAI made oral and written demands for petitioners to pay the loan/ consideration for the
property.10
In July 2003, petitioners filed a Complaint11 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. The case was docketed as Civil Case No. 3812 and raffled to Branch 47
of the Regional Trial Court (RTC) of Puerto Princesa City (Puerto Princesa RTC). Petitioners
alleged in their Complaint that as a result of the Rural Banks closure and PDICs 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 on TCT No.
37017. Petitioners prayed, thus:
a. That after the filing of this complaint an order be made allowing the consignation x x x of
Php77,418.00.
b. For the court to compute and declare the amount of interest to be paid by the plaintiffs and
thereafter to allow the consignation of the interest payments in order to give way for the full
discharge of the loan.

c. To order the AFPMBAI to turn over to the custody of the court the loan records and title
(T.C.T. No. 37017) of the plaintiffs if the same are in their possession.
d. To declare the full payment of the principal loan and interest and ordering the full
discharge from mortgage of the property covered by T.C.T. No. 37017.
e. To order the Register of Deeds of Puerto Princesa City to cancel the annotation of real
estate mortgage under Entry No. 3364 at the back of T.C.T. No. 37017.
f. Thereafter, to turn over to the plaintiffs their title free from the aforesaid mortgage loan. 12

AFPMBAI filed a Motion to Dismiss13 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. 95714 (PD 957). It added that since no prior valid tender of payment was made by
petitioners, the consignation case was fatally defective and susceptible to dismissal.
Ruling of the Regional Trial Court
15
In an October 16, 2003 Order, the trial court denied AFPMBAIs Motion to Dismiss, 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,16 which the trial court denied in its March 19, 2004
Order.17
Ruling of the Court of Appeals
AFPMBAI thus instituted CA-G.R. SP No. 84446, which is a Petition for Certiorari18 raising the
issue of jurisdiction. On September 29, 2005, the CA rendered the assailed Decision decreeing
as follows:
WHEREFORE, premises considered, this Petition is GRANTED. The Assailed 16 October 2003
and 19 March 2004 Orders of the public respondent judge are hereby ordered VACATED and
SET ASIDE.
SO ORDERED.19
The CA held that Civil Case No. 3812 is a case for specific performance of AFPMBAIs
contractual and statutory obligations as owner/developer of Kalikasan Mutual Homes, which
makes PD 957 applicable and thus places the case within the jurisdiction of the HLURB. It said
that since one of the remedies prayed for is the delivery to petitioners of TCT No. 37017, the
case is cognizable exclusively by the HLURB.
Petitioners moved for reconsideration which was denied by the CA in its January 12, 2006
Resolution.
Hence, the instant Petition.
Issue
The sole issue that must be resolved in this Petition is: Does the Complaint in Civil Case No.
3812 fall within the exclusive jurisdiction of the HLURB?
Petitioners Arguments
Petitioners assert that the elements which make up a valid case for consignation are present in
their Complaint. They add that since a deed of absolute sale has been issued in their favor, and
possession of the property has been surrendered to them, not to mention that title has been
placed in their name, the HLURB lost jurisdiction over their case. And for this same reason,

petitioners argue that their case may not be said to be one for specific performance of
contractual and legal obligations under PD 957 as nothing more was left to be done in order to
perfect or consolidate their title.
Petitioners thus pray that the herein assailed Decision and Resolution of the CA be set aside,
and that the trial court be ordered to continue with the proceedings in Civil Case No. 3812.
Respondent's Arguments
Respondent, on the other hand, insists in its Comment20 that jurisdiction over petitioners case
lies with the HLURB, as it springs from their contractual relation as seller and buyer,
respectively, of a subdivision lot. The prayer in petitioners Complaint involves the surrender or
delivery of the title after full payment of the purchase price, which respondent claims are
reciprocal obligations in a sale transaction covered by PD 957. Respondent adds that in effect,
petitioners are exacting specific performance from it, which places their case within the
jurisdiction of the HLURB.
Our Ruling
The Court grants the Petition.
The Complaint makes out a case for consignation.
The settled principle is that "the allegations of the Complaint determine the nature of the action
and consequently the jurisdiction of the courts. This rule applies whether or not the plaintiff is
entitled to recover upon all or some of the claims asserted therein as this is a matter that can be
resolved only after and as a result of the trial."21
Does the Complaint in Civil Case No. 3812 make out a case for consignation? It alleges that:
6.0 Not long after however, RBST22 closed shop and defendant Philippine Deposit
Insurance Corporation (PDIC) was appointed as its receiver. The plaintiffs, through a
representative, made a verbal inquiry to the PDIC regarding the payment of their loan but
were told that it has no information or record of the said loan. This made [sic] the plaintiffs in
quandary as to where or whom they will pay their loan, which they intend to pay in full, so as
to cancel the annotation of mortgage in their title.
7.0 It was discovered that the loan papers of the plaintiffs, including the duplicate original of
their title, were in the possession of defendant AFPMBAI. It was unclear though why the said
documents including the title were in the possession of AFPMBAI. These papers should have
been in RBSTs possession and given to PDIC after its closure in the latters capacity as
receiver.
8.0 Plaintiffs are now intending to pay in full their real estate loan but could not decide
where to pay the same because of RBST [sic] closure and PDICs failure to locate the loan
records and title. This courts intervention is now needed in order to determine to [sic] where
or whom the loan should be paid.
9.0 Plaintiffs hereby respectfully prays [sic] for this court to allow the deposit of the amount
of Php77,418.00 as full payment of their principal loan, excluding interest, pursuant to the
Loan and Mortgage Agreement on 4 July 1994.23
From the above allegations, it appears that the petitioners debt is outstanding; that the Rural
Banks receiver, PDIC, informed petitioners that it has no record of their loan even as it took
over the affairs of the Rural Bank, which on record is the petitioners creditor as per the July 4,
1994 Loan and Mortgage Agreement; that one way or another, AFPMBAI came into possession
of the loan documents as well as TCT No. 37017; that petitioners are ready to pay the loan in
full; however, under the circumstances, they do not know which of the two the Rural Bank or

AFPMBAI should receive full payment of the purchase price, or to whom tender of payment
must validly be made.
Under Article 1256 of the Civil Code,24 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 as shaped by the allegations in their
Complaint, the Court finds that a case for consignation has been made out, 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 and TCT No.
37017, it appears that petitioners were not informed thereof, nor made privy thereto.
Indeed, the instant case presents a unique situation where the buyer, through no fault of his
own, was able to obtain title to real property in his name even before he could pay the purchase
price in full. There appears to be no vitiated consent, nor is there any other impediment to the
consummation of their agreement, just as it appears that it would be to the best interests of all
parties to the sale that it be once and for all completed and terminated. For this reason, Civil
Case No. 3812 should at this juncture be allowed to proceed.
Moreover, petitioners position is buttressed by AFPMBAIs own admission in its Comment25 that
it made oral and written demands upon the former, which naturally aggravated their confusion
as to who was their rightful creditor to whom payment should be made the Rural Bank or
AFPMBAI. Its subsequent filing of the Motion to Dismiss runs counter to its demands to pay. If it
wanted to be paid with alacrity, then it should not have moved to dismiss Civil Case No. 3812,
which was brought precisely by the petitioners in order to be able to finally settle their obligation
in full.
Finally, the lack of prior tender of payment by the petitioners is not fatal to their consignation
case. They filed the case for the exact reason that they were at a loss as to which between the
two the Rural Bank or AFPMBAI was entitled to such a tender of payment. Besides, as
earlier stated, Article 1256 authorizes consignation alone, without need of prior tender of
payment, where the ground for consignation is that the creditor is unknown, or does not appear
at the place of payment; or is incapacitated to receive the payment at the time it is due; or when,
without just cause, he refuses to give a receipt; or when two or more persons claim the same
right to collect; or when the title of the obligation has been lost.
Consignation is necessarily judicial; hence, jurisdiction lies with the RTC, not with the HLURB.
On the question of jurisdiction, petitioners case should be tried in the Puerto Princesa RTC, and
not the HLURB. Consignation is necessarily judicial,26 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.

The consignation having been made, the interested parties shall also be notified thereof.
(Emphasis and underscoring supplied)
The above provision clearly precludes consignation in venues other than the courts. Elsewhere,
what may be made is a valid tender of payment, but not consignation. The two, however, are to
be distinguished.
Tender of payment must be distinguished from consignation. Tender is the antecedent of
consignation, that is, an act preparatory to the consignation, which is the principal, and from
which are derived the immediate consequences which the debtor desires or seeks to obtain.
Tender of payment may be extrajudicial, while consignation is necessarily judicial, and the
priority of the first is the attempt to make a private settlement before proceeding to the
solemnities of consignation. (8 Manresa 325).27
While it may be true that petitioners claim relates to the terms and conditions of the sale of
AFPMBAIs subdivision lot, this is overshadowed by the fact that since the Complaint in Civil
Case No. 3812 pleads a case for consignation, the HLURB is without jurisdiction to try it, as
such case may only be tried by the regular courts.
WHEREFORE, premises considered, the Petition is GRANTED. The September 29, 2005
Decision and January 12, 2006 Resolution of the Court of Appeals in CA-G.R. SP No. 84446
are ANNULLED and SET ASIDE. The October 16, 2003 and March 19, 2004 Orders of the
Regional Trial Court of Puerto Princesa City, Branch 47, are REINSTATED, and the case is
REMANDED to the said court for continuation of the proceedings.
SO ORDERED.
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