APPLICATION OF PAYMENT

THIRD DIVISION
G.R. No. 176246

February 13, 2009

PREMIERE DEVELOPMENT BANK, Petitioner,

vs.
CENTRAL SURETY & INSURANCE COMPANY, INC., Respondent.
DECISION
NACHURA, J.:
1

Before us is a petition for review on certiorari assailing the Court of Appeals (CA) Decision in CA-G.R. CV No. 85930, which reversed
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and set aside the decision of the Regional Trial Court (RTC), Branch 132, Makati City in Civil Case No. 0051306.
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,
3
evidenced by Promissory Note (PN) No. 714-Y, stipulates payment of 17% interest per annum payable monthly in arrears and the
principal payable on due date. In addition, PN No. 714-Y 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.
4

To secure payment of the P6,000,000.00 loan, Central Surety executed in favor of Premiere Bank a Deed of Assignment with Pledge
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 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
5
October 10, 2001. This loan was, likewise, evidenced by a PN numbered 376-X and secured by a real estate mortgage over
Condominium Certificate of Title No. 8804, Makati City. PN No. 376-X was availed of through a renewal of Central Suretys prior loan,
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then covered by PN No. 367-Z. 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 the P6,000,000.00 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/
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Business Development Group - Head
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
8
Vice-President
9

Accordingly, by September 20, 2000, Central Surety issued Bank of Commerce (BC) Check No. 08114 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,
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Evangeline Veloira, with the notation "full payment of loan-Wack Wack," as reflected in Central Suretys Disbursement Voucher.
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
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originally covered by PN No. 367-Z. 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 AND COM 714-Y
**************************************************
Dear Sirs:
We write on behalf of our client, Premiere Development Bank, in connection with your above-captioned 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.)
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PACITA M. ARAOS
(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
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. 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
13
Counsel for Central Surety & Insurance Company
(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
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 and PN # 717-X, 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:
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1) Account No.: COM 235-Z P1,044,939.45

2) Account No.: IND 717-X P1,459,693.15
15

3) Account No.: COM 367-Z P4,476,200.18

4) Account No.: COM 714-Y 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
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Control Department
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
and the Spouses Castaedas personal loan of P2,600,000.00 under PN No. 717-X. Premiere Bank also applied proceeds thereof to a
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commercial loan under PN No. 235-Z taken out by Casent Realty and Development Corporation (Casent Realty), and to Central
Suretys loan originally covered by PN No. 367-Z, renewed under PN No. 376-X, 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. Additionally, Central
Surety asked that the Wack Wack Membership pledge, the security for the P6,000,000.00 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 the P6,000,000.00 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 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 and IND 714-Y
was within *Premiere Banks+ valid exercise of its right according the stipulation.lawphil.net 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) 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
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100,000.00 as attorneys fees. (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 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, 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
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
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OCCASIONED BY THE MALICIOUS FILING OF THIS SUIT.
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 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, respectively, thus:
It bears stressing that the parties to PN No. 714-Y 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 secured by Wack Wack membership
certificate; and 2.) Account No. 367-Z secured by Condominium Certificate of Title. The two loans are secured by separate and
different collaterals. The collateral for Account No. 714-Y, which is the Wack Wack membership certificate answers only for that
account and nothing else. The collateral for Account No. 367-Z, 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.1avvphi1
Likewise, [Central Surety] cannot be held accountable for the loan obligation of spouses Castaeda under Account No. IND 717-X.
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
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corporation, since that president, as an individual, and the corporation are separate entities.
In fact, Premiere Bank did not appeal or question the RTCs ruling specifically annulling the application of the P6,000,000.00 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."
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Indeed, the debtors right to apply payment has been considered merely directory, and not mandatory, following this Courts
earlier pronouncement that "the ordinary acceptation of the terms may and shall may be resorted to as guides in ascertaining the
22
mandatory or directory character of statutory provisions."
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
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third person with a right recognized by law.
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
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equity of the case, taking into consideration all its circumstances.

25

Verily, the debtors right to apply payment can be waived and even granted to the creditor if the debtor so agrees. This 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.

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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
27
erred. Planters was entitled to apply the Hi-Plains payments as it saw fit.
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
and Promissory Note No. 376-X, 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 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
28
declare it unnecessary.
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. 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
29
and validity of such waiver.
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
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the prosecution of his legal remedies.
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, which had been renewed under Promissory Note 376-X, in the amount of P40.898 Million.
Central Surety is aware that Promissory Note 367-Z (or 376-X) contains the same provision as in Promissory Note No 714-Y 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
31
application of deposits or payments shall be conclusive and binding upon us.
Obviously, Central Surety is also cognizant that Promissory Note 367-Z 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
32
due under any other document or agreement evidencing obligations for borrowed money x x x.
by virtue of which, it follows that the obligation under Promissory Note 367-Z had become past due and demandable, with further
notice expressly waived, when Central Surety defaulted on its obligations under Promissory Note No. 714-Y.
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Mendoza v. Court of Appeals forecloses any doubt that an acceleration clause is valid and produces legal effects. In fact, in Selegna
34
Management and Development Corporation v. United Coconut Planters Bank, 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.

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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. 714-Y.
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
36
party from deceptive schemes contained in ready-made covenants. 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.
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

P6M

August 29, 1999

Deed of
Assignment

P 15 M

Stipulation

As security for PN 714-Y and/or

such Promissory Note/s which the

with Pledge

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, 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 was entered into, a renewal of the prior Promissory Note 367-Z, 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

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 (PN

367-Z)

P40,898,000.00

As security for PN 714-Y 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 of P15,000,000.00 (when the actual
loan covered by PN No. 714-Y 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
37
amount of all advancements shall have been paid.
38

Our ruling in Prudential Bank v. Alviar 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/C-252, 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
39
same freely and voluntarily.
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
40
a penalty on the right to litigate. 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.

PARDO, J.:

The case before the Court is an appeal from a decision of the Court of Appeals 1 reversing that of the Regional Trial Court, Antipolo,
Rizal, 2 affirming in all respects the decision of the Municipal Trial Court, Antipolo, Rizal, 3 ordering respondent Rene G. Diaz to
vacate the condominium unit owned by petitioner and to pay back current rentals, attorney's fees and costs.1wphi1.nt

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).

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 P100,000.00 (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. 4

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. 5

On August 19, 1994, the Court of Appeals denied the motion. 6

Hence, this appeal via petition for review on certiorari. 7

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. 8 While he occupied the premises as lessee, petitioner agreed to sell the condominium unit to respondent by
installments. 9 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. 10 "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." 11 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. 12
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. 13 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. 14 In the provisional deed of
sale in this case, 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. 15 Consequently, on July 26, 1992, petitioner
terminated the provisional deed of sale by a notarial notice of cancellation. 16 Nonetheless, 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. 17 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. 18

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. 19 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. 20
Consequently, the Court REVIVES the decision of the Regional Trial Court, Antipolo, Rizal, Branch 71, 21 affirming in toto the decision
of the Municipal Trial Court, Antipolo, Rizal, Branch 01. 22

No costs.

SO ORDERED.

TENDER OF PAYMENTAND CONSIGNATION

TEDDY G. PABUGAIS vs. DAVE P. SAHIJWANI

DECISION

YNARES-SANTIAGO, J.:

Assailed in this petition for review on certiorari is the January 16, 2003 Amended Decision[1] of the Court of Appeals[2] in CA-G.R. CV
No. 55740 which set aside the November 29, 1996 Decision[3] of the Regional Trial Court of Makati, Branch 64, in Civil Case No. 942363.

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,
V.
JOSEFINA V. FERNANDEZ,
G.R. No. 142882
Promulgated:
May 2, 2006
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 co-owners 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.
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.

FIRST DIVISION

G.R. No. 172259

December 5, 2006

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 CAG.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 Decision3 dated 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 Bauko-Sabangan, 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.,

V. ROSARIO T. ALZUL,

DECISION
The Case
This Petition for Review on Certiorari[1] under Rule 45 questions the February 18, 2005 Decision[2] 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 Resolution[3] and December 2, 2003 Order[4] 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 Resolution*5+ 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, N-1924, 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 defendant-appellant
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 nonextendible 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 Decision[7] and July 31,
2001 Resolution[8] 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 parties[14] 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 quasi-judicial 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.
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 Resolution[20] 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 Resolution[21] 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 letter[23] 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 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 (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 187,380[28] 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, N-1924, 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
defendant-appellant 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 CAG.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 nonpayment 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 CA-G.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. N1922, 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.

G.R. No. 171298

April 15, 2013

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 Resolution3 denying 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

In an October 16, 2003 Order,15 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.1wphi1 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.