19. Cinco vs. C.A., G.R. No.

151903

FACTS: Petitioner Manuel Cinco obtained a loan in the amount 700,000.00 from respondent MTLC. The
loan was evidenced by the promissory note, and secured by a real estate mortgage over the spouses
Cinco’s 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 in favor of MTLC. Manuel went to Ester Servacio, MTLC’s 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. 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 Ester’s refusal was unjustified and unreasonable, the court did not agree with
Manuel’s position that this refusal had the effect of payment that extinguished his obligation to MTLC.
Article 1256 is clear that “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.

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 Ester’s refusal of the payment was without basis. Under these circumstances, the Court
holds 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.

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, they would not have been liable for
any interest from the time tender of payment was made if the payment had only been accepted.
21. Landbank vs. Ong

On March 18, 1996, spouses Johnson and Evangeline Sy secured a loan from Land Bank Legazpi City in
the amount of PhP 16 million. The loan was secured by three (3) residential lots, five (5) cargo trucks,
and a warehouse. The Spouses Sy could no longer pay their loan which resulted to the sale of three (3)
of their mortgaged parcels of land for PhP 150,000 to Angelina Gloria Ong, Evangeline’s mother, under
a Deed of Sale with Assumption of Mortgage.

Evangeline’s father, petitioner Alfredo Ong, later went to Land Bank to inform them about the sale and
assumption of mortgage. Land Bank Branch Head told Alfredo that there was nothing wrong with
agreement with the Spouses Sy and provided him requirements for the assumption of mortgage. Alfredo
later found out that his application for assumption of mortgage was not approved by Land Bank. On
December 12, 1997, Alfredo initiated an action for recovery of sum of money with damages against Land
Bank, as Alfredo’s payment of PhP. 750,000 was not returned by Land Bank. Alfredo said that Land
Bank’s foreclosure without informing him of the denial of his assumption of the mortgage was done in
bad faith and that he was made to believed that P750,000 would cause Land Bank to approve his
assumption to the mortgage.

This prompted Alfredo to file a case with RTC against Land Bank. On its decision to the case, RTC held
that the contract approving the assumption of mortgage was not perfected as a result of the credit
investigation conducted on Alfredo where he was disapproved.. As such, it ruled that it would be
incorrect to consider Alfredo a third person with no interest in the fulfillment of the obligation under
Article 1236 of the Civil Code. Although Land Bank was not bound by the Deed between Alfredo and the
Spouses Sy, the appellate court found that Alfredo and Land Bank’s active preparations for Alfredo’s
assumption of mortgage essentially novated the agreement.

Issue: Whether or not the Court of Appeals erred in holding that Art. 1236 of the Civil Code does not
apply and in finding that there is novation.

Ruling:

The Supreme Court affirmed with modification to the appealed decision that recourse against Land
Bank. Land Bank contends that Art.1236 of the Civil Code backs their claim that Alfredo should have
sought recourse against the Spouses Sy instead of Land Bank. The court agreed with Land Bank on the
point mentioned as to the first part of paragraph 1 of Art. 1236. However,. Alfredo made a conditional
payment so that the properties subject of the Deed of Sale with Assumption of Mortgage which Land
Bank required from him would be approved. Thus, he made payment not as a debtor but as a
prospective mortgagor. Furthermore, the contract between Alfredo and LandBank was not perfected
nor consummated because of the adverse disapproval of the proposed assumption. The Supreme Court
did not agree with the Court of Appeals that there was novation in the contract between the parties
because not all elements of novation were present.

Article 1236. The creditor is not bound to accept payment or performance by a third person who has no interest in
the fulfillment of the obligation, unless there is a stipulation to the contrary.

Whoever pays for another may demand from the debtor what he has paid, except that if he paid without the
knowledge or against the will of the debtor, he can recover only insofar as the payment has been beneficial to the
debtor. (1158a)
23. MONDRAGON vs. Sola

Facts: Petitioner Mondragon Personal Sales entered into a Contract of Services with respondent Sola
whereby the latter would provide service facilities (bodega cum office) to petitioner’s products, sales
force and customers for a consideration of commission or service fee which at a certain rate of the
monthly sales of Mondragon.

Prior to the execution of the said contract, respondent’s wife had an existing obligation with petitioner.
Such obligation was acknowledged and confirmed by the respondent and made himself (with his wife)
liable to pay such debt on installment basis. By virtue of which, the petitioner withheld the payment of
the respondent’s service fees and applied the same as partial payments to the debt which he obligated
to pay. Thereafter, respondent closed and suspended the operation of his office cum bodega and
subsequently filed for an action for accounting and rescission against the petitioner.

The RTC ruled in favor of the petitioner Mondragon and held that there was no fraud on the part of the
latter that would rescind their contract and that it is correct when it deducted the service commission of
Sola to his wife’s account. The CA reversed the RTC’s decision.

Issue: Whether legal compensation under Art. 1279 of the Civil Code would apply in this case.

Held: Yes. The petitioner's act of withholding respondent's service fees/commissions and applying them
to the latter's outstanding obligation with the former is merely an acknowledgment of the legal
compensation that occurred by operation of law between the parties. Compensation is a mode of
extinguishing to the concurrent amount the obligations of persons who in their own right and as
principals are reciprocally debtors and creditors of each other. Legal compensation takes place by
operation of law when all the requisites are present, as opposed to conventional compensation which
takes place when the parties agree to compensate their mutual obligations even in the absence of some
requisites. Legal compensation requires the concurrence of the following conditions:
(1) That each one of the obligors be bound principally, and that he be at the same time a principal
creditor of the other;

(2) That both debts consist in a sum of money, or if the things due are consumable, they be of the
same kind, and also of the same quality if the latter has been stated;

(3) That the two debts be due;

(4) That they be liquidated and demandable;

(5) That over neither of them there be any retention or controversy, commenced by third persons
and communicated in due time to the debtor.

All the requisites for legal compensation are present in this case. Petitioner and respondent are both
principal obligors and creditors of each other. Their debts to each other consist in a sum of money.
Respondent acknowledged and bound himself to pay petitioner the amount of P1,973,154.73 which was
already due, while the service fees owing to respondent by petitioner become due every month.
Respondent's debt is liquidated and demandable, and petitioner's payments of service fees are
liquidated and demandable every month as they fall due. Finally, there is no retention or controversy
commenced by third persons over either of the debts. Thus, compensation is proper up to the
concurrent amount where petitioner owes respondent P125,040.01 for service fees, while respondent
owes petitioner P1,973,154.73.