ARTICLE 1232

1. CINCO V. COURT OF APPEALS

Petitioner Manuel Cinco obtained a loan in the amount 700,000.00 from respondent Maasin Traders Lending Corporation
(MTLC). The loan was evidenced by the promissory note, and secured by a real estate mortgage over the spouses Cincos
land and 4-storey building .To pay the loan in favor of MTLC, the spouses Cinco applied for a loan with the Philippine
National Bank(PNB), and offered the same properties they previously mortgage to MTLC. The PNB approved the load
application for 1.3 Million; the release was, however, conditioned on the cancellation of the mortgage infavor of MTLC.
Manuel went to Ester Servacio (Ester), MTLCs President to inform her that there was money with PNB for Payment of
his loan. Manuel executed a Special Power of Attorney (SPA) authorizing Ester to collect the proceeds of the loan. Ester
went to the PNB to inquire, the second time around, about the proceeds. The bank officer confirmed the existence of such
loan, but they required Ester to first sign a deed of release/cancellation of the mortgage before they could release the
proceeds of the loan to her. Outraged, Ester refused the deed and did not collect the 1.3 Million. Ester instituted
foreclosure proceeding. To prevent the foreclosure, the spouses Cinco filed an action for specific performance, damages,
and preliminary injunction.

Issue: Whether the loan due the MTLC had been extinguished by the act of the spouses Cinco amounted to payment.

Held: No, While Esters refusal was unjustified and unreasonable, we cannot agree with Manuels position that this
refusal had the effect of payment that extinguished his obligation to MTLC. Article 1256 is clear and unequivocal on this
point when it provides that ARTICLE 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. In
short, a refusal without just cause is not equivalent to payment; to have the effect of payment and the consequent
extinguishment of the obligation to pay, the law requires the companion acts of tender of payment and consignation.
Tender of payment, as defined in Far East Bank and Trust Company v. Diaz Realty, Inc., is the definitive act of offering
the creditor what is due him or her, together with the demand that the creditor accept the same.

When a creditor refuses the debtors tender of payment, the law allows the consignation of the thing or the sum due.
Tender and consignation have the effect of payment, as by consignation, the thing due is deposited and placed at the
disposal of the judicial authorities for the creditor to collect. Nonetheless, the SPA stood as an authority to collect the
proceeds of the already-approved PNB loan that, upon receipt by Ester, would have constituted as payment of the MTLC
loan. The Court agrees with Manuel that Esters refusal of the payment was without basis .Under these circumstances, we
hold that while no completed tender of payment and consignation took place sufficient to constitute payment, the spouses
Go Cinco duly established that they have legitimately secured a means of paying off their loan with MTLC; they were
only prevented from doing so by the unjust refusal of Ester to accept the proceeds of the PNB loan through her refusal to
execute the release of the mortgage on the properties mortgaged to MTLC. We also find that under the circumstances, the
spouses Go Cinco have undertaken, at the very least, the equivalent of a tender of payment that cannot but have legal
effect. Since payment was available and was unjustifiably refused, justice and equity demand that the spouses Go Cinco
be freed from the obligation to pay interest on the outstanding amount from the time the unjust refusal took place.

ARTICLE 1234: AGUILAR v. CA- Co-ownership

Any of the Co-owners may demand the sale of the house and lot at any time and the other cannot object to such demand;
thereafter the proceeds of the sale shall be divided equally according to their respective interests.

FACTS:
Petitioner Vergilio and respondent Senen bought a house and lot in Paraaque where their father could spend and enjoy
his remaining years in a peaceful neighborhood. They initially agreed that Vergilio will get 2/3 and Senen will get 1/3; but
later they agreed on equal shares. Senen was left in the said lot to take care of their father since Vergilios family was in
Cebu. After their fathers death petitioner demanded from private respondent that the latter vacate the house and that the
property be sold and proceeds thereof divided among them but the latter refused. Petitioner then filed to compel the sale of
the property. The chunk of the issue tackled by the courts was regarding the pre-trial. Respondent filed a motion to cancel
Pre-trial since the counsel had to accompany his wife in Dumaguete City where she would be a principal sponsor in a
wedding. CFI denied the motion; and the pre-trial proceeded on the scheduled date. The respondents did not appear thus
they were declared in default. The trial went on ex parte without the respondent and held that the property should be sold
to a third party and that the proceeds be distributed to the parties; in addition respondent was made to pay rent from the
time the action was filed. Respondents appealed this and the decision was reversed by the CA saying that the TC erred in
declaring respondents in default; the case was then remanded to the trial court. Hence this appeal.

ISSUE:
A) W/N CA erred (1) in holding that the motion of respondent through counsel to cancel the pre-trial was dilatory in
character and (2) in remanding the case to the trial court for pre-trial and trial?
ISSUE RELEVANT TO PROPERTY:
B) W/N trial court was correct with regards to the sale and rent?

RULING:
A) YES, CA erred in granting the respondents motion and remanding the case. The law is clear that the appearance of
parties at the pretrial is mandatory. A party who fails to appear at a pre-trial conference may be non-suited or considered
as in default. It is the discretion of the court to grant the motion if it sees that the reason for the cancelation of the same
would be reasonable. SC found that the reason for the cancelation of the pre-trial was insufficient and that the trial court
was not in grave abuse of discretion when they denied it.
B) YES, with a few modification. Petitioner and respondents are co-owners of subject house and lot in equal shares; either
one of them may demand the sale of the house and lot at any time and the other cannot object to such demand; thereafter
the proceeds of the sale shall be divided equally according to their respective interests.
BASIS: Article 494 of the Civil Code provides that no co-owner shall be obliged to remain in the co-ownership, and that
each co-owner may demand at any time partition of the thing owned in common insofar as his share is concerned.
Corollary to this rule, Art. 498 of the Code states that whenever the thing is essentially indivisible and the co-owners
cannot agree that it be allotted to one of them who shall indemnify the others, it shall be sold and its proceeds accordingly
distributed.

SC held that of the proceeds should go to the petitioner and the remainder to the respondent (1,200 each.) Also rent was
awarded 1,200 pesos per month with legal interest from the time the trial court ordered the respondent to vacate, for the
use and enjoyment of the other half of the property.
BASIS: When petitioner filed an action to compel the sale of the property and the trial court granted the petition and
ordered the ejectment of respondent, the co-ownership was deemed terminated and the right to enjoy the possession
jointly also ceased.

ARTICLE 1240: DELA CRUZ V. CONCEPCION

Dela Cruz v Concepcion
GR No. 172825, October 11, 2012

FACTS:

On March 25, 1996, petitioners entered into a Contract to Sell with respondent involving a house and lot in Antipolo City
for a 2 million consideration.

Respondent made the following payments, to wit:

(1) 500,000 by way of downpayment;
(2) 500,000 on May 30, 1996;
(3) 500,000 paid on January 22, 1997; and
(4) 500,000 bounced check dated June 30, 1997 which was replaced.
Thus, Respondent was able to pay the 2 million total obligation.

Before respondent issued the 500,000 replacement check, she told petitioners that based on the computation of her
accountant as of July 6, 1997, her unpaid obligation which includes interests and penalties was only 200,000. Petitioners
agreed with respondent. Despite repeated demands, petitioners failed to collect the amounts they claimed. Hence, the
complaint for sum of money with damages filed with the RTC of Antipolo Rizal. In her answer with Compulsory
counterclaim and during the presentation of evidence, respondent presented a receipt purportedly indicating payment of
the remaining balance of 200,000 to Losloso who allegedly received the same on behalf of petitioners.
On March 8, 2014, the RTC rendered a decision in favor of respondent. On appeal, the CA affirmed the decision with
modification by deleting the award of moral damages and attorney's fees in favor of respondent. Aggrieved, petitioners
come before the Court in this petition for review on certiorari under Rule 45.

ISSUE:
Whether it was proper to dismiss the complaint based on the ground that the defendant fully paid the claims of plaintiff

HELD:
Yes.

When the issue is tried without the objection of the parties, it should be treated with all respects as if it had been raised in
the pleadings. On the other hand, when there is an objection, the evidence may be admitted where its admission will not
prejudice him.

Thus, while respondent judicially admitted in her answer that she only paid 2 million and that she still owed petitioners
200,000, respondent claimed later and in fact, submitted an evidence to show that she already paid the whole amount of
her unpaid obligation. It is noteworthy what when respondent presented evidence of payment, petitioners did not object
thereto.

To be sure, petitioners were given ample opportunity to refute the fact of and present evidence to prove payment.

ARTICLE 1245: FBDC V. YLC 2008

FBDC vs. YLLAS LENDING CORP
G.R. No. 158997
October 6, 2008

FACTS: FORT BONIFACIO DEVELOPMENT CORP. ( FBDC) executed a lease contract in favor of Tirreno, Inc. over
a unit at the Bonifacio Global City in Taguig, Metro Manila. The parties had the lease contract notarized on the day of its
execution. Tirreno used the leased premises for Savoia Ristorante and La Strega Bar.

Due to Tirrenos alleged failure to settle its outstanding obligations, FBDC entered and occupied the leased premises.
FBDC also appropriated the equipment and properties left by Tirreno pursuant to Section 22 of their Contract of Lease as
partial payment for Tirrenos outstanding obligations.

In 2002, Yllas Lending Corporation caused the sheriff of the trial court to serve an alias writ of seizure against FBDC.
FBDC found out that in 2001, respondents filed a complaint for Foreclosure of Chattel Mortgage with Replevin, against
Tirreno, et al. In their complaint, Yllas alleged that they lent a sum of money to Tirreno et al and in 2000 executed a Deed
of Chattel Mortgage in favor of Yllas as security for the loan. The Chattel Mortgage covered properties of the Tirrenos
restaurant and bar.

On the same day, FBDC served on the sheriff an affidavit of title and third party claim.

Despite FBDCs service upon him of an affidavit of title and third party claim, the sheriff proceeded with the seizure of
certain items from FBDCs premises. The sheriff delivered the seized properties to Yllas.

FBDC questioned the propriety of the seizure and delivery of the properties to respondents without an indemnity bond
before the trial court, which decided against FBDC. It stated that:

1. Section 22 of the lease contract between FBDC and Tirreno is void under Article 2088 of the Civil Code.

2. FBDC should have filed a separate complaint against respondents instead of filing a motion to intervene. (The trial
court quoted Bayer Phils. v. Agana )

FBDC filed a MR, which was denied. Hence this petition to review pure questions of law.
ISSUE:

1. WON FBDC has no right of ownership over the subject properties because Section 22 of the contract of lease is void
for being a pledge and a pactum commissorium;

2. WON the proper remedy of FBDC as third party claimant over the subject properties is to file a separate action; and

3. WON the trial court is should have required respondents to file an indemnity bond for FBDCs protection

4. WON FBDC can terminate the lease contract without judicial intervention

HELD: Petition granted

1.NO. Respondents, as well as the trial court, contend that Section 22 constitutes a pactum commissorium, a void
stipulation in a pledge contract. FBDC, on the other hand, states that Section 22 is merely a dacion en pago.

Section 22 of the Lease Contract between FBDC and Terrano states:

Section 22. Lien on the Properties of the Lessee

Upon the termination of this Contract or the expiration of the Lease Period without the rentals, charges and/or damages, if
any, being fully paid or settled, the LESSOR shall have the right to retain possession of the properties of the LESSEE used
or situated in the Leased Premises and the LESSEE hereby authorizes the LESSOR to offset the prevailing value thereof
as appraised by the LESSOR against any unpaid rentals, charges and/or damages. If the LESSOR does not want to use
said properties, it may instead sell the same to third parties and apply the proceeds thereof against any unpaid rentals,
charges and/or damages.

Articles 2085 and 2093 of the Civil Code enumerate the requisites essential to a contract of pledge:

(1) the pledge is constituted to secure the fulfillment of a principal obligation;

(2) the pledgor is the absolute owner of the thing pledged;

(3) the persons constituting the pledge have the free disposal of their property or have legal authorization for the purpose;
and

(4) the thing pledged is placed in the possession of the creditor, or of a third person by common agreement. Article 2088
of the Civil Code prohibits the creditor from appropriating or disposing the things pledged, and any contrary stipulation is
void.

Section 22, as worded, gives FBDC a means to collect payment from Tirreno in case of termination of the lease contract
or the expiration of the lease period and there are unpaid rentals, charges, or damages. The existence of a contract of
pledge, however, does not arise just because FBDC has means of collecting past due rent from Tirreno other than direct
payment.

The fourth requisite, that the thing pledged is placed in the possession of the creditor, is absent. There is non-
compliance with the fourth requisite even if Tirrenos personal properties are found in FBDCs real property. Tirrenos
personal properties are in FBDCs real property because of the Contract of Lease, which gives Tirreno possession of the
personal properties. Since Section 22 is not a contract of pledge, there is no pactum commissorium.

On the other hand, Article 1245 of the Civil Code defines dacion en pago, or dation in payment, as the alienation of
property to the creditor in satisfaction of a debt in money. Philippine National Bank v. Pineda held that dation in payment
requires delivery and transmission of ownership of a thing owned by the debtor to the creditor as an accepted equivalent
of the performance of the obligation. There is no dation in payment when there is no transfer of ownership in the
creditors favor, as when the possession of the thing is merely given to the creditor by way of security.
2. NO. The Bayer ruling is inapplicable to the present case. The third party in Bayer filed his claim during execution; in
the present case, FBDC filed for intervention during the trial.

The timing of the filing of the third party claim is important because the timing determines the remedies that a third party
is allowed to file. A third party claimant under Section 16 of Rule 39 (Execution, Satisfaction and Effect of
Judgments)17 of the 1997 Rules of Civil Procedure may vindicate his claim to the property in a separate action, because
intervention is no longer allowed as judgment has already been rendered. We allow FBDCs intervention in the present
case because FBDC satisfied the requirements of Section 1, Rule 19 (Intervention) of the 1997 Rules of Civil Procedure,
which reads as follows:

Section 1. Who may intervene. A person who has a legal interest in the matter in litigation, or in the success of either of
the parties, or an interest against both, or is so situated as to be adversely affected by a distribution or other disposition of
property in the custody of the court or of an officer thereof may, with leave of court, be allowed to intervene in the action.
The court shall consider whether or not the intervention will unduly delay or prejudice the adjudication of the rights of the
original parties, and whether or not the intervenors rights may be fully protected in a separate proceeding.

Although intervention is not mandatory, nothing in the Rules proscribes intervention.

3. YES. Pursuant to Section 14 of Rule 57, the sheriff is not obligated to turn over to respondents the properties subject of
this case in view of respondents failure to file a bond.

The bond in Section 14 of Rule 57 (proceedings where property is claimed by third person) is different from the bond in
Section 3 of the same rule (affidavit and bond).

Under Section 14 of Rule 57, the purpose of the bond is to indemnify the sheriff against any claim by the intervenor to the
property seized or for damages arising from such seizure, which the sheriff was making and for which the sheriff was
directly responsible to the third party.

Section 3, Rule 57, on the other hand, refers to the attachment bond to assure the return of defendants personal property
or the payment of damages to the defendant if the plaintiffs action to recover possession of the same property fails, in
order to protect the plaintiffs right of possession of said property, or prevent the defendant from destroying the same
during the pendency of the suit.

Because of the absence of the indemnity bond in the present case, FBDC may also hold the sheriff for damages for the
taking or keeping of the properties seized from FBDC.

4. YES. A lease contract may be terminated without judicial intervention. Consing v. Jamandre upheld the validity of a
contractually-stipulated termination clause:

This stipulation is in the nature of a resolutory condition, for upon the exercise by the [lessor] of his right to take
possession of the leased property, the contract is deemed terminated. This kind of contractual stipulation is not illegal,
there being nothing in the law proscribing such kind of agreement.

xxx

Judicial permission to cancel the agreement was not, therefore necessary because of the express stipulation in the contract
of [lease] that the [lessor], in case of failure of the [lessee] to comply with the terms and conditions thereof, can take-over
the possession of the leased premises, thereby cancelling the contract of sub-lease. Resort to judicial action is necessary
only in the absence of a special provision granting the power of cancellation. 14

A lease contract may contain a forfeiture clause. In the same manner, we allow FBDCs forfeiture of Tirrenos properties
in the leased premises. By agreement between FBDC and Tirreno, the properties are answerable for any unpaid rent or
charges at any termination of the lease. Such agreement is not contrary to law, morals, good customs, or public policy.
Forfeiture of the properties is the only security that FBDC may apply in case of Tirrenos default in its obligations.

NOTES:
1. A chattel mortgagee, unlike a pledgee, need not be in, nor entitled to, the possession of the property, unless and until the
mortgagor defaults and the mortgagee thereupon seeks to foreclose thereon. Since the mortgagees right of possession is
conditioned upon the actual default which itself may be controverted, the inclusion of other parties, like the debtor or the
mortgagor himself, may be required in order to allow a full and conclusive determination of the case. When the mortgagee
seeks a replevin in order to effect the eventual foreclosure of the mortgage, it is not only the existence of, but also the
mortgagors default on, the chattel mortgage that, among other things, can properly uphold the right to replevy the
property. The burden to establish a valid justification for that action lies with the plaintiff [-mortgagee]. An adverse
possessor, who is not the mortgagor, cannot just be deprived of his possession, let alone be bound by the terms of
the chattel mortgage contract, simply because the mortgagee brings up an action for replevin.

FBDC exercised its lien to Tirrenos properties even before respondents and Tirreno executed their Deed of Chattel
Mortgage. FBDC is adversely affected by the disposition of the properties seized by the sheriff. Moreover, FBDCs
intervention in the present case will result in a complete adjudication of the issues brought about by Tirrenos creation of
multiple liens on the same properties and subsequent default in its obligations.

ARTICLE 1248: CONSOLIDATED INDUSTRIAL GASES, INC., vs. ALABANG MEDICAL CENTER

FACTS:

Consolidated Industrial Gases, Inc. (CIGI) is a domestic corporation engaged in

the business of selling industrial gases (i.e., oxygen, hydrogen and acetylene) and installingcentralized medical and
vacuum pipeline system. Respondent Alabang Medical Center (AMC),on the other hand, is a domestic corporation
operating a hospital business. On August 14, 1995, CIGI, as contractor and AMC, as owner, entered into a contract
whereby the former bound itself to provide labor and materials for the installation of a medical gas pipeline system for the
first, second and third floors (Phase 1 installation project) of the hospital for the contract price of Nine Million Eight
Hundred Fifty-Six Thousand Seven Hundred Twenty-Five Pesos and 18/100 (P9,856,725.18) which AMC duly paid in
full. The herein legal controversy arose after the parties entered into another agreement on October 3, 1996 this time for
the continuation of the centralized medical oxygen and vacuum pipeline system in the hospitals fourth & fifth floors
(Phase 2 installation project) at the cost ofTwo Million Two Hundred Sixty-Seven Thousand Three Hundred Forty-Four
Pesos and 42/100(P2,267,344.42).

This second contract followed the same terms and conditions of the contract for the Phase 1 installation project. CIGI
forthwith commenced installation works for Phase 2 while AMC paid the partial amount of One Million Pesos
(P1,000,000.00) with the agreement that
the balance shall be paid through progress billing and within fifteen (15) days from the date ofreceipt of the original
invoice sent by CIGI.On August 4, 1997, CIGI sent AMC Charge Sales Invoice No. 125847 as
completion billing for the unpaid balance of P1,267,344.42 for the Phase 2 installation project. When thesales invoice was
left unheeded, CIGI sent a demand letter to AMC on January 7, 1998. AMC, however, still failed to pay thus prompting
CIGI to file a collection suit before the RTC on September 15, 1998. CIGI claimed that AMCs obligation to pay the
outstanding balance of the contract price for the Phase 2 installation project is already due and demandable pursuant to
Article II, page 4of the contract stating that the project shall be paid through progress billing within fifteen (15)days from
the date of receipt of original invoice.

In its Answer with Counterclaim, AMC averred that its obligation to pay the balance of the contract price has not yet
accrued because CIGI still has not turned over a complete and functional medical oxygen and vacuum pipeline system.
AMC alleged that CIGI has not yet tested Phases 1 and 2 which constitute one centralized medical oxygen and vacuum
pipeline system of the hospital despite substantial payments already made.

ISSUE:

Whether or not CIGIs demand for payment upon AMC is proper

HELD:

Under the subject contracts, CIGI as contractor bound itself to install a centralized medical oxygen and vacuum pipeline
system for the first to fifth floors of AMC, which in turn ,undertook to pay the contract price therefor in the manner
prescribed in the contract. Being reciprocal in nature, the respective obligations of AMC and CIGI are dependent upon
the performance of the other of its end of the deal such that any claim of delay or non-performance can only prosper if the
complaining party has faithfully complied with its own obligation. The Court has painstakingly evaluated the records of
the case and based thereon, there can be no other conclusion than that CIGIs allegations failed to muster merit.

The Court finds that CIGI did not faithfully complete its prestations and hence, its demand for payment cannot prosper
based on the following grounds: (a) under the two installation contracts, CIGI was bound to perform more prestations than
merely supplying labor and materials; and (b) CIGI failed to prove by substantial evidence that it requested AMC for
electrical facilities as such, its failure to conduct a test run and orientation/seminar is unjustified.

Both of the installation contracts clearly show that CIGI undertook to carry out
more prestations than merely supplying labor and materials for the medical oxygen and vacuum pipeline system. CIGI agr
eed also: (a) to perform a pressure drop, leak testing, test run, painting/color coding of the installed centralized medical ox
ygen, vacuum and nitrous oxide pipeline system; and (b) to conduct orientation, seminars and training for the AMC emplo
yeeswho will be involved in the operation of the centralized pipeline system before the formal turnover of the project.
This is evident from the herein reproduced provisions of the installation contracts. For failure to prove that it requested for
electrical facilities from AMC, the undisputed matter remains CIGI failed to conduct the stipulated test run and
seminar/orientation.

Consequently, the dismissal of CIGIs collection suit is imperative as the balance of the contract price is not yet
demandable. For having failed to perform its correlative obligation to AMC under their reciprocal contract, CIGI cannot
unilaterally demand for the payment of the remaining balance by simply sending an invoice and billing statement to the
former. Its right to demand for and collect payment will only arise upon its completion of ALL its prestations under the
subject contracts. In reciprocal obligations, before a party can demand the performance of the obligation of the other, the
former must also perform its own obligation. For its failure to turn over a
complete project in accordance with the terms and conditions of the installation contracts, CIGI cannotdemand for the
payment of the contract price balance from AMC, which, in turn, cannot
legally be ordered to pay. Otherwise, AMC will be effectively forced to accept an incomplete performance contrary to Arti
cle 1248 of the Civil Code which states that "(u)nless there is anexpress stipulation to that effect, the creditor cannot be
compelled partially to receive the prestations in which the obligation consists."

CIRCULAR NO. 537 Series of 2006

Pursuant to Section 52 of Republic Act No. 7653 and Monetary Board Resolution No. 862 dated 6 July 2006, the
maximum amount of coins to be considered as legal tender is adjusted as follows:

1. One thousand pesos (P1,000.00) for denominations of 1-Piso, 5-Piso and 10-Piso coins; and

2. One hundred pesos (P100.00) for denominations of 1-sentimo, 5-sentimo, 10-sentimo, and 25-sentimo coins.

This Circular shall take effect after fifteen (15) days following its publication in the Official Gazette or in a newspaper of
general circulation.

ARTICLE 1250: EQUITABLE PCI BANK V. NG SHEUNG NGOR (2007)

FACTS: Respondent Ng Sheung Ngor, Ken Appliance Division, Inc and Benjamin E. Go filed an action for annulment
and/or reformation of documents and contracts against petitioner Equitable PCI Bank (Equitable) and its employees,
Aimee Yu and Bejan Lionel Apas.

1. Respondents claimed that Equitable induced them to avail of its peso and dollar credit facilities by offering low
interest rates so they accepted the propodal and signed the banks printed promissory notes on various dates
beginning 1996. But they were unaware that the documents contain identical escalation clause granting Equitable
authority to increase interest rates without their consent

2. Equitable asserted that respondents knowingly accepted all the terms and conditions contained in the promissory
notes, also they continuously availed of and benefited from Equitables credit facilities for five years.
 3. The trial court upheld the validity of the promissory notes however it invalidated the escalation clause for it
violated the principle of mutuality of contracts. It also took judicial notice of the steep depreciation of the peso
during the intervening period and declared the existence of extraordinary deflation

4. RTC ordered the use of the 1996 dollar exchange rate in computing respondents dollar denominated loans and
awarded moral and exemplary damages.

5. Equitable filed an MR, while respondents prayed for the issuance of a writ of execution.

6. RTC issued an omnibus order denying MR and ordered the issuance of the motion of a writ of execution in favor
of respondents.

7. Three real properties of Equitable were levied upon and were sold in a public auction. Respondents were the
highest bidder and certificates of sale were issued.

8. Equitable filed a petition for certiorari with an application for an injunction in the CA to enjoin the
implementation and execution of the omnibus order. CA granted Equitables application for injunction was
granted.

9. Despite the injunction, Equitables properties previously levied were sold in a public auction to respondent.
Equitable moved to annul the auction sale. CA dismissed the petition for certiorari, hence this petition.

ISSUE: What is the relationship between the bank and its depositor?

HELD: The relationship between the bank and its depositor is that of creditor and debtor. For this reason, a bank has the
right to set off the deposit in its hands for the payment of a depositors indebtedness. Respondent indeed defaulted on their
obligation. For this reason, Equitable had the option to exercise its legal right to set-off or compensation. However, the
RTC mistakenly (or, as it now appears, deliberately) concluded that Equitable acted fraudulently or in bad faith or in
wanton disregard of its contractual obligations despite the absence of proof. The undeniable fact was that, whatever
damage respondents sustained was purely the consequence of their failure to pay their loans. There was therefore
absolutely no basis for the award of moral damages to them.

ARTICLE 1252: PREMIERE DEVELOPMENT BANK VS CENTRAL SURETY & INSURANCE COMPANY,
INC. 579 SCRA 359

FACTS: Respondent Central Surety & Insurance Company (Central Surety) acquired an industrial loan worth six million
pesos from petitioner Premiere Development Bank, evidenced by Promissory Note. Should Central Surety fail to pay, it
would be liable to Premiere Bank for: (1) unpaid interest up to maturity date; (2) unpaid penalties up to maturity date; and
(3) unpaid balance of the principal. To Secure Payment for the loan Central Surety executed a Deed of Assignment with
Pledge in favor of Premier Bank its proprietary share in Wack Wack and golf and country Club. Central Surety had
another commercial loan with Premiere Bank worth 40,898,000.00 pesos, again by Promissory Note.

To secure payment of the loan they were secured a real estate mortgage over a Condominium Certificate. This was availed
through a renewal of Central Suretys prior loan. It was stipulated in the contract that Premiere Bank as creditor would
have the right to decide to which the payment would be applied, and that there is no need for an express demand from the
creditor to make the obligations due and demandable. Central Surety issued a check worth 6,000,000.00 pesos and
payable to Premiere Bank. However, the latter returned such check and sent a letter, as part of a normal bank procedure,
demanding payment and threatening foreclosure of Central Suretys securities, the pledge and real estate mortgage, should
it fail to pay within ten days from date of receipt. This was alleged by the latter to be an act of waiving Premiere Banks
right to apply payments. Central Surety moves for the release of the Wack Wack Membership pledge for their supposed
paid loan. The lower court ruled in favor of Premiere Bank, while the Court of Appeals reversed the prior decision of the
lower court.

ISSUE:

(1) Whether or not Premiere Bank waived its right of application of payments on the loans of Central Surety;

(2) Whether the release of the Wack Wack Membership pledge is in order.

HELD:

(1) No. Relevant to the case is the statutory provision on application of payments, particularly Article 1252 of the Civil
Code. 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. xxx The debtors right to apply payment is only
directory, and not mandatory, as manifested by the use of the word may. Such right may be waived or even granted to
the creditor if both parties agree on such circumstance. In the instant case, it was stipulated in the contract that the right to
apply payments would be enjoyed by the Premiere Bank. It cannot be understood that such granted right was waived by
Premiere Bank. As all debts were already due, the subsequent demand made by Premiere Bank cannot be equated with a
waiver of the right to demand payment of all the matured obligations of Central Surety to Premiere Bank. The Court also
recognized the standard practice in commercial transactions to send demand letters before default may set in. The demand
cannot be considered a waiver for a waiver must be positively demonstrated, and voluntary, made knowingly, intelligently
and with sufficient awareness of relevant circumstances and likely consequences. Also any inference of a waiver made by
Premiere Bank is denied by the 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. When Central Surety issued a check as
payment to Premiere Bank, it knew very well that it had several loans which granted Premiere Bank the right to apply its
payment.

(2) No. Considering that the parties are bound by a contract of adhesion, where Central Surety imposed a readymade
contract on Premiere Bank, the latter had freedom to reject or adhere to the contract. Central Surety, being a well-
established personality, would also not be considered as a disadvantaged party. The contract between the parties falls on
the dragnet clause, which is one specifically phrased to subsume all debts of past and future origins. The security clause
in the instant case is that of a continuing pledge, wherein the Wack Wack Membership served as security for the standing
obligation, also for future advancements. Such security worth 15,000,000.00 pesos was clearly worth more than the
industrial loan worth 6,000,000.00 pesos, which was understood to secure the ballooning debt of the Central Surety. As all
demandable obligations are yet to be fulfilled, the release of the Wack Wack membership as security cannot yet to be done
as prayed for by Central Surety. Wherefore, the instant petition is partially granted. The decision of the Court of Appeals
is set aside and the decision of the Regional Trial Court of Makati is reinstated with modification.

ARTICLE 1253: MARQUEZ V. ELISAN CREDIT CORPORATION

Facts:

Marquez obtained from Elisan Credit Corporation a loan payable in weekly installments and subject to annual
interest with monthly penalties and attorneys in case of nonpayment. A chattel mortgage was also executed stipulating
that the motor vehicle shall stand as a security for all other obligations of every kind already incurred or
which hereafter may be incurred. The payment of that loan was acknowledged by both parties.

Subsequently, Marquez obtained another loan evidenced by a promissory note with the same terms and conditions as the
first loan. When the second loan matured, there still remained an unpaid balance. Marquez requested the creditor to pay
the unpaid balance by daily installments until the loan is paid; the creditor agreed. Thus, several months after the maturity
of the loan, Marquez had already paid a total amount which is greater than the amount of the principal.
Despite such, the creditor filed a complaint for foreclosure of the CM on the ground that Marquez allegedly failed to pay
the principal of the second loan despite demand. It was also prayed that the unpaid balance plus
accrued penalties and interests be paid because, allegedly, Marquez failure to pay upon maturity triggered the imposition
of monthly penalties and attorneys fees.

Marquez, citing Art 1176 and 1235 of the Civil Code, insists that his daily payments should be deemed to have been
credited against the principal, as the official receipts issued by the creditor were silent with respect to the payment
of interest and penalties.

Issue 1: W/N the creditor waived the payment of the interest

No. The fact that the official receipts did not indicate whether the payments were made for the principal or the interest
does not prove that the creditor waived the interest. There is no presumption of waiver of interest without any evidence
showing that the creditor accepted the daily instruments as payments for the principal.

Issue 2: W/N the daily payments made by the debtor be applied to the interest

Yes. Notwithstanding the fact it was not indicated in the receipts whether the payments were applied to the principal or
the interest, such failure should not be taken against the creditor. Under Article 1253 of the Civil Code, if the debt
produces interest, payment of the principal shall not be deemed to have been made until the interests have been covered.
Thus, the creditor in this case has a right to credit the payments to the interest first.

Proper Application of Art 1176 vs Art 1253

Article 1253 is viewed as having an obligatory character and not merely suppletory. It cannot be dispensed with except by
mutual agreement.

Article 1176 falls under Chapter I (Nature and Effect of Obligations) while Article 1253 falls under Subsection I
(Application of Payments),Chapter IV (Extinguishment of Obligations) of Book IV (Obligations and Contracts) of the
Civil Code.

The structuring of these provisions, properly taken into account, means that Article 1176 should be treated as a general
presumption subject to the more specific presumption under Article 1253. Article 1176 is relevant on questions pertaining
to the effects and nature of obligations in general, while Article 1253 is specifically pertinent on questions involving
application of payments and extinguishment of obligations.

The presumption under Article 1176 does not resolve the question of whether the amount received by the creditor is a
payment for the principal or interest. Under this article the amount received by the creditor is the payment for the
principal, but a doubt arises on whether or not the interest is waived because the creditor accepts the payment for the
principal without reservation with respect to the interest. Article 1176 resolves this doubt by presuming that the creditor
waives the payment of interest because he accepts payment for the principal without any reservation.

On the other hand, the presumption under Article 1253 resolves doubts involving payment of interest-bearing debts. It is a
given under this Article that the debt produces interest. The doubt pertains to the application of payment; the uncertainty
is on whether the amount received by the creditor is payment for the principal or the interest. Article 1253 resolves this
doubt by providing a hierarchy: payments shall first be applied to the interest; payment shall then be applied to the
principal only after the interest has been fully-paid.

Correlating the two provisions, the rule under Article 1253 that payments shall first be applied to the interest and not to
the principal shall govern if two facts exist: (1) the debt produces interest (e.g., the payment of interest is expressly
stipulated) and (2) the principal remains unpaid.

The exception is a situation covered under Article 1176, i.e., when the creditor waives payment of the interest despite the
presence of (1) and (2) above. In such case, the payments shall obviously be credited to the principal.

Since the doubt in the present case pertains to the application of the daily payments, Article 1253 shall apply. Only when
there is a waiver of interest shall Article 1176 become relevant.
Issue 3: W/N an order for foreclosure is proper

No. Foreclosure in this case is without legal and factual basis because the chattel mortgage was already extinguished
when the obligation under the first loan was duly paid.

A CM can only cover obligations existing at the time the mortgage is constituted. For a CM to cover debts yet to be
contracted, a fresh chattel mortgage may be executed or the old contract be amended conformably to the form prescribed
by the CM Law. Here, since there was no showing that a new agreement was executed, the security can no longer apply to
the second loan. The chattel mortgage was already extinguished because being merely an accessory in nature, it cannot
exist independently of the principal obligation.

Although a promise expressed in a chattel mortgage to include debts that are yet to be contracted can be a binding
commitment that can be compelled upon, the security itself, however, does not come into existence or arise until after a
chattel mortgage agreement covering the newly contracted debt is executed either by concluding a fresh chattel
mortgage or by amending the old contract conformably with the form prescribed by the Chattel Mortgage Law.

Refusal on the part of the borrower to execute the agreement so as to cover the after-incurred obligation can constitute an
act of default on the part of the borrower of the financing agreement whereon the promise is written, but the remedy of
foreclosure can only cover the debts extant at the time of constitution and during the life of the chattel mortgage sought to
be foreclosed.

The Chattel Mortgage Law requires the parties to the contract to attach an affidavit of good faith and execute an oath that

the mortgage is made for the purpose of securing the obligation specified in the conditions thereof, and for no other
purposes, and that the same is a just and valid obligation, and one not entered into for the purposes of fraud.

It is obvious therefore that the debt referred in the law is a current, not an obligation that is yet merely contemplated.

The only obligation specified in the chattel mortgage contract was the first loan which the petitioner later fully paid. By
virtue of Section 3 of the Chattel Mortgage Law, the payment of the obligation automatically rendered the chattel
mortgage terminated; the chattel mortgage had ceased to exist upon full payment of the first loan. Being merely an
accessory in nature, it cannot exist independently of the principal obligation.

The parties did not execute a fresh chattel mortgage nor did they amend the chattel mortgage to comply with the Chattel
Mortgage Law which requires that the obligation must be specified in the affidavit of good faith. Simply put, there no
longer was any chattel mortgage that could cover the second loan upon full payment of the first loan. The order to
foreclose the motor vehicle therefore had no legal basis.