e. Joint and Solidary

Effect of Insolvency of any Guarantor

Follow the rule on solidary obligations: The share of the insolvent guarantor shall be borne by the others including the paying guarantor in the same joint proportion.

Remedies Available to Creditor in Cases of Breach (part 2 of 2)

Article 1218. Payment by a solidary debtor shall not entitle him to reimbursement from his co-debtors if such payment is made after the obligation has prescribed or become illegal. (n)

Article 1219. The remission made by the creditor of the share which affects one of the solidary debtors does not release the latter from his responsibility towards the co-debtors, in case the debt had been totally paid by anyone of them before the remission was effected. (1146a)

Article 1220. The remission of the whole obligation, obtained by one of the solidary debtors, does not entitle him to reimbursement from his co-debtors. (n)

Article 1221. If the thing has been lost or if the prestation has become impossible without the fault of the solidary debtors, the obligation shall be extinguished.

If there was fault on the part of any one of them, all shall be responsible to the creditor, for the price and the payment of damages and interest, without prejudice to their action against the guilty or negligent debtor.

If through a fortuitous event, the thing is lost or the performance has become impossible after one of the solidary debtors has incurred in delay through the judicial or extrajudicial demand upon him by the creditor, the provisions of the preceding paragraph shall apply. (1147a)

Article 1222. A solidary debtor may, in actions filed by the creditor, avail himself of all defenses which are derived from the nature of the obligation and of those which are personal to him, or pertain to his own share. With respect to those which personally belong to the others, he may avail himself thereof only as regards that part of the debt for which the latter are responsible. (1148a)

SECTION 5

Divisible and Indivisible Obligations

Article 1223. The divisibility or indivisibility of the things that are the object of obligations in which there is only one debtor and only one creditor does not alter or modify the provisions of Chapter 2 of this Title. (1149)

Article 1224. A joint indivisible obligation gives rise to indemnity for damages from the time anyone of the debtors does not comply with his undertaking. The debtors who may have been ready to fulfill their promises shall not contribute to the indemnity beyond the corresponding portion of the price of the thing or of the value of the service in which the obligation consists. (1150)

Article 1225. For the purposes of the preceding articles, obligations to give definite things and those which are not susceptible of partial performance shall be deemed to be indivisible.

When the obligation has for its object the execution of a certain number of days of work, the accomplishment of work by metrical units, or analogous things which by their nature are susceptible of partial performance, it shall be divisible.

However, even though the object or service may be physically divisible, an obligation is indivisible if so provided by law or intended by the parties.

In obligations not to do, divisibility or indivisibility shall be determined by the character of the prestation in each particular case. (1151a)

SECTION 6

Obligations with a Penal Clause

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

The penalty may be enforced only when it is demandable in accordance with the provisions of this Code. (1152a)

Article 1227. The debtor cannot exempt himself from the performance of the obligation by paying the penalty, save in the case where this right has been expressly reserved for him. Neither can the creditor demand the fulfillment of the obligation and the satisfaction of the penalty at the same time, unless this right has been clearly granted him. However, if after the creditor has decided to require the fulfillment of the obligation, the performance thereof should become impossible without his fault, the penalty may be enforced. (1153a)

Article 1228. Proof of actual damages suffered by the creditor is not necessary in order that the penalty may be demanded. (n)

Article 1229. The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable. (1154a)

Article 1230. The nullity of the penal clause does not carry with it that of the principal obligation.

The nullity of the principal obligation carries with it that of the penal clause. (1155)

Joint obligation (Obligacion Mancomunada)

The whole obligation is to be paid or fulfilled proportionately by different debtors or demanded proportionately by different creditors.

General Rule: The presumption is that an obligation is always joint. (CIVIL CODE, art. 1207)

Exceptions: (FLENT)

• When the obligation Expressly stipulates solidarity;
• When the Law requires solidarity;

Examples:

• If two or more heirs take possession of the estate, they shall be solidarily liable for the loss or destruction of a thing devised or bequeathed, even though only one of them should have been negligent. (CIVIL CODE, art. 927.)
• Even when the agent has exceeded his authority, the principal is solidarily liable with the agent if the former allowed the latter to act as though he had full powers. (CIVIL CODE, art. 1911.)
• All partners are solidarily liable with the partnership for liabilities chargeable to the partnership under Civil Code Articles 1822 and 1823. (CIVIL CODE, art.. 1822-1824.)
• If two or more persons have appointed an agent for a common transaction or undertaking, they shall be solidarily liable to the agent for all the consequences of the agency. (CIVIL CODE, art. 1915.)
• When the Nature of the obligation requires solidarity;
• When a charge or condition is imposed upon heirs or legatees and the Testament expressly makes the charge or condition in solidum (Manresa); and
• When a solidary responsibility is imputed by a Final judgment upon several defendants. (Gutierrez v. Gutierrez, G.R. No. 34840)

Effects of joint liability

• Demand on one produces delay only with respect to the debt of the debtor against whom a demand is made.
• Interruption of prescription as to one joint debtor does not, by itself, affect the shares of the other joint debtors.
• Each debtor can be held liable only for the payment of his proportionate share of the debt.
• A joint debtor cannot be compelled to answer for the acts or liability of the other debtors.
• A vice affecting one joint debtor’s consent does not, by itself, affect the obligations of the other joint debtors.
• Insolvency or death of one debtor does NOT affect other debtors.

Effects of joint credit

• Each creditor can demand for the payment only of his proportionate share of the credit.
• A joint creditor cannot act in representation of the other creditors.

NOTE: If no different shares are specified or otherwise indicated, the credit or debt in a joint obligation is presumed divided into equal shares.

Effect of breach

In a joint indivisible obligation, failure of one debtor to comply gives rise to indemnity for damages. Debtors who were ready to perform shall not contribute to the indemnity beyond their corresponding portions of the price of the thing or the value of the service. (CIVIL CODE, art.1224)

NOTE: The indivisibility of the prestation does not necessarily import solidarity. They arise from different criteria of qualification. Indivisibility has to do with the prestation and its performance. Solidarity has to do with the parties to an obligation.

SOLIDARY OBLIGATIONS

Solidary obligation (Obligacion Solidaria) – must be expressed in stipulation or provided by law or by nature of obligation. Otherwise, it will be considered a joint obligation/credit. (CIVIL CODE, art.1207)

“Jointly and severally” expresses solidarity. “Individually and jointly” makes each debtor answerable for the entire obligation; “collectively,” “separately,” and “distinctively” alone do not necessarily do so. The obligation must expressly impose solidarity, unless the law or the nature of the obligation requires it. (Ernesto v. Ronquillo, G.R. No. L-55138)

Also, use of pronoun “I” in a promissory note where several debtors sign denotes solidarity. (PINEDA163-164 (2009); Republic Planters Bank v. CA, 216 SCRA 738 (1992))

If a solidary debtor pays the obligation in part and is issued a quitclaim, he can recover reimbursement from the co-debtor only insofar as his payment exceeded his share in the total obligation. If the debtor pays less than his share, he cannot demand reimbursement because his payment is less than his actual debt. (Republic Glass Corp. v. Qua, G.R. No. 144413)

Kinds of solidary obligations

• Active solidarity
• Passive solidarity
• Mixed solidarity
• Conventional solidarity
• Legal solidarity

Active Solidarity – solidarity on the part of the creditor or obligee

• Each creditor represents the other in the act of recovery of payment.
• Credit is divided equally between creditors among themselves.
• Debtor may pay any of the solidary creditors.
• Any creditor can collect full amount of obligation. Unless there is an agreement as to which creditor can collect. Debtor must pay to the creditor who first makes a demand. There is a case of improper payment if the debtor pays to another creditor who did not make a demand; he can be made to pay again to the creditor who made the demand.
• After a solidary creditor collects the full amount, all debtors are released from the obligation. The creditor who received payment must then deliver the shares of the other solidary creditors (presumed equal unless amount indicated).

Effect if one of solidary creditor dies: Share is transmitted to heirs (but collectively)

Passive Solidarity – solidarity on the part of debtors or obligors

• Any debtor can be made to pay the full amount of the obligation with the right to recover from co-debtors. (CIVIL CODE, art. 1216)
• The right to make a choice of who among the debtors the creditor will proceed against, lies on the creditor.
• An accommodation party under the law is solidarily liable based on the Negotiable Instruments Law. (Gonzales v. PCIB, G.R. No. 180257)

Effect of demand on one solidary debtor: It will not stop the creditor from going against another debtor as long as the debt has not yet been paid in full. (CIVIL CODE, art. 1216)

Effect if one of solidary debtor dies: A creditor may elect to proceed against the surviving solidary debtors without filing a claim against the deceased debtor’s estate. To recover from the estate, however, the creditor must comply with the applicable claims period under Rule 86 of the Rules of Court. (CIVIL CODE, art. 1216)

Although the Rules of Court mandate that in case of death of a respondent, the claims should be filed in the settlement of estate, the court said that’s a procedural rule and the rule of the Civil Code on solidary liability should prevail — in which case, creditor can choose who to sue. (Boston v. CA, G.R. No. 173946)

Effect if several solidary debtors offer to pay: If two or more solidary debtors offer to pay, the creditor may choose which offer to accept. The creditor may proceed against one, some, or all solidary debtors, but may not collect more than the debt. (CIVIL CODE, arts. 1217 and 1216)

Effect of Prescription: interruption of prescription to one creditor affects all creditors.

Effect of Delay: If one solidary debtor incurs delay, the solidary debtors may be liable to the creditor for its consequences; as between the debtors, the debtor at fault bears the resulting damages. (CIVIL CODE, arts. 1211 and 1221)

Defenses – a solidary debtor when sued can raise the ff. defenses:

• From the nature of obligation – e.g. the obligation is void, has prescribed, or has already been paid – the defense is complete: debtor sued is not liable, and no one is liable;
• Personal to him – may be: (i) complete (the debtor sued may avoid liability for his own share but remains answerable for the shares of co-debtors who lack the defense) e.g., minority, vitiated consent; or (ii) partial e.g., non arrival of term or condition – possible even if solidary-debtor sued is liable for share of others, less his own share)
• Those which pertains to the share of his co-debtors – with respect to the share which personally belong to others, the debtor may avail himself thereof only as regards that part of the debt for which the others are responsible.

Once creditor is paid in full, the obligation is extinguished, and the debtor who pays is entitled to reimbursement from others, as if joint (based on agreed sharing or if not, equal). (CIVIL CODE, art. 1217)

When one of the solidary debtors cannot, because of his insolvency, reimburse his share to the debtor paying the obligation, such share shall be borne by all his co-debtors, in proportion to the debt of each. (CIVIL CODE, art. 1217)

Difference from joint obligation: The share of the insolvent debtor is assumed proportionately by others, in the meantime.

Reimbursement includes interest from date of payment until actual reimbursement, except if solidary debtor pays before maturity – in which case interest runs only from maturity.

Mixed Solidarity – on the part of the obligors and obligees, or the part of the debtors and the creditors

Conventional Solidarity – agreed upon by the parties

Legal Solidarity – imposed by law

Examples:

• Obligations arising from tort
• The responsibility of two or more persons who are liable for quasi-delict is solidary. (CIVIL CODE, art. 2194)
• Obligations arising from quasi-contracts
• Two or more heirs who take possession of the estate are solidarily liable for the loss or destruction of a thing devised or bequeathed, even if only one was negligent. (CIVIL CODE, art. 927)
• Civil liability arising from a felony: principals are solidarily liable among themselves for their quota, as are accomplices and accessories for their respective quotas, subject to the rules on subsidiary liability. (REVISED PENAL CODE, arts. 109–111)
• Bailees in commodatum

Effects: No reimbursement if payment is made after prescription or became illegal.

Payment made before debt is due: no interest can be charged except from maturity, otherwise, interest can be charged from date of payment.

Insolvency of one: others are liable for share prorata

If different terms and conditions: collect only what is due, later on collect as and when they become due or the conditions are fulfilled

Remission made after payment is made: co-debtor still entitled to reimbursement

Effect of insolvency or death of co-debtor: still liable for whole amount

Fault of any debtor: everyone is responsible to the creditor – price, damage, and interest, but the debtor at fault should reimburse those who paid the creditor

Complete/personal defense: total or partial (up to amount of share only) if NOT personal to him (Braganza v. Villa Abrille, G.R. No. L-12471 — citation requires verification: G.R. No. L-12471 identifies De Braganza v. Abrille)

Effect of loss or impossibility of the prestation:

• If without fault – no liability
• If with fault – there is liability (also for damage and interest)
• Loss due to fortuitous event after default – there is liability (because of default)

As a rule, corporations are solely liable for their obligations. The directors or trustees and officers are not liable with the corporation even if it is through their acts that the corporation incurred the obligation. As an exception, a director, trustee, or officer may be held personally liable with the corporation for a corporate obligation if the qualifying misconduct, such as gross negligence or bad faith in directing corporate affairs, is properly pleaded and clearly and convincingly proven. (Olivarez Realty Corporation and Dr. Pablo R. Olivarez v. Castillo, G.R. No. 196251, July 9, 2014)

NOTE: The law clearly provides that the creditor who may have executed any acts mentioned in Art. 1215 (Novation, Compensation, Merger or Confusion), as well as he or she who collects the debts, shall be liable to the others for the share in the obligation corresponding to them.

Obligations with a Penal Clause

One to which an accessory undertaking is attached for the purpose of insuring its performance by virtue of which the obligor is bound to pay a stipulated indemnity or perform a stipulated prestation in case of breach.

Effect of confusion or merger in one debtor or creditor in a solidary obligation

Confusion or merger of the debt involving any solidary creditor or solidary debtor extinguishes the obligation, without prejudice to Article 1219. (NCC, Art. 1215)

PRACTICE QUESTIONS (part 3 of 5)

QTN: Chua bought and imported to the Philippines dicalcium phosphate. When the cargo arrived at the Port of Manila, it was discovered that some were in apparent bad condition. Thus, Chua filed with Smith Bell and Co., Inc. (claiming agent of First Insurance Co.) a formal statement of claim for the loss. No settlement of the claim having been made, Chua then filed an action. Is Smith, Bell, and Co., solidarily liable upon a marine insurance policy with its disclosed foreign principal?

A: NO. Art. 1207 of the NCC clearly provides that "there is a solidary liability only when the obligation expressly so states, or when the law or the nature of the obligation requires solidarity." The well- entrenched rule is that solidary obligation cannot lightly be inferred. It must be positively and clearly expressed. (Smith, Bell & Co., Inc. v. CA, G.R. No. 110668, 06 Feb. 1997)

Q: The labor arbiter rendered a decision, the fallo of which states the following respondents as liable, namely: FCMC, Sicat, Gonzales, Chiu Chin Gin, Lo Kuan Chin, and INIMACO. INIMACO questions the execution, alleging that the alias writ of execution altered and changed the tenor of the decision by changing their liability from joint to solidary, by the insertion of the words "AND/OR.” Is the liability of INIMACO pursuant to the decision of the labor arbiter solidary or not?

A: INIMACO's liability is not solidary but merely joint. Well-entrenched is the rule that solidary obligation cannot lightly be inferred. There is a solidary liability only when the obligation expressly so states, when the law so provides or when the nature of the obligation so requires.

In the dispositive portion of the labor arbiter, the word "solidary" does not appear. The said fallo expressly states the following respondents therein as liable, namely: Filipinas Carbon Mining Corporation, Sicat, Gonzales, Chiu Chin Gin, Lo Kuan Chin, and INIMACO. Nor can it be inferred therefrom that the liability of the six respondents in the case below is solidary; thus, their liability should merely be joint. (INIMACO v. NLRC, G.R. No. 101723, 11 May 2000)

Q: Mactan Rock Industries, through its President and Chief Executive Officer Tompar, entered into a Technical Consultancy Agreement (TCA) with Germo, whereby the parties agreed, inter alia, that: (a) Germo shall stand as MRII's marketing consultant who shall take charge of negotiating, perfecting sales, orders, contracts, or services of MRII, but there shall be no employer-employee relationship between them; and (b) Germo shall be paid on a purely commission basis, including a monthly allowance of P5,000.00. During the effectivity of the TCA, Germo successfully negotiated and closed with International Container Terminal Services, Inc. (ICTSI) a supply contract of 700 cubic meters of purified water per day. Accordingly, MRII commenced supplying water to ICTSI on 22 Feb. 2007, and in turn, the latter religiously paid MRII the corresponding monthly fees. Despite the foregoing, MRII allegedly never paid Germo his rightful commissions amounting to P2,225,969.56 as of December 2009, inclusive of interest. Initially, Germo filed a complaint before the National Labor Relations Commission (NLRC), but the same was dismissed for lack of jurisdiction due to the absence of employer-employee relationship between him and MRII. Germo filed the instant complaint praying that MRII and Tompar pay him for unpaid commissions with legal interest from the time they were due until fully paid, moral damages, exemplary damages, and the costs of suit.

MRII and Tompar averred, among others, that: (a) there was no employer-employee relationship between MRII and Germo as the latter was hired as a mere consultant; (b) Germo failed to prove that the ICTSI account materialized through his efforts as he did not submit the required periodic reports of his negotiations with prospective clients; and (c) ICTSI became MRII's client through the efforts of a certain Ed Fornes. Are MRII and Tompar, as the CEO and President, solidarily liable to pay Germo?

A: NO. It is a basic rule that a corporation is a juridical entity vested with legal and personality separate and distinct from those acting for and on behalf of, and from the people comprising it. As a general rule, directors, officers, or employees of a corporation cannot be held personally liable for the obligations incurred by the corporation. To hold a director or officer personally liable, the complainant must allege, and clearly and convincingly prove, that the director or officer assented to patently unlawful corporate acts or was guilty of gross negligence or bad faith.

Before a director or officer of a corporation can be held personally liable for corporate obligations, the following requisites must concur:

a. the complainant must allege in the complaint that the director or officer assented to patently unlawful acts of the corporation, or that the officer was guilty of gross negligence or bad faith; and

b. the complainant must clearly and convincingly prove such unlawful acts, negligence or bad faith.

In this case, Tompar's assent to the patently unlawful acts of the MRII or that his acts were tainted by gross negligence or bad faith was not alleged in Germo's complaint, much less proven during the course of the trial. Therefore, the deletion of Tompar's solidary liability with MRII is in order. (Mactan Rock Industries v. Germo, G.R. No. 228799, 10 Jan. 2018)

Q: Joey, Jovy, and Jojo are solidary debtors under a loan obligation of P300,000.00 which has fallen due. The creditor has, however, condoned Jojo's entire share in the debt. Since Jovy has become insolvent, the creditor makes a demand on Joey to pay the debt. (1998 BAR)

a. How much, if any, may Joey be compelled to pay?

A: Joey can be compelled to pay only the remaining balance of P200,000, in view of the remission of Jojo’s share by the creditor. (Art. 1215, NCC)

b. To what extent, if at all, can Jojo be compelled by Joey to contribute to such payment?

A: Jojo can be compelled by Joey to contribute P50,000. When one of the solidary debtors cannot, because of his insolvency, reimburse his share to the debtor paying the obligation, such share shall be borne by all his co-debtors, in proportion to the debt of each. (Art. 1217(3), NCC)

Since the insolvent debtor's share, which Joey paid was P100,000, and there are only two remaining debtors - namely Joey and Jojo - these two shall share equally the burden of reimbursement. Jojo may thus be compelled by Joey to contribute P50,000.

Q: Iya and Betty owed Jun P500,000 for advancing their equity in a corporation they joined as incorporators. Iya and Betty bound themselves solidarily liable for the debt. Later, Iya and Jun became sweethearts, so Jun condoned the debt of P500,000. May Iya demand from Betty P250,000 as her share in the debt? Explain with legal basis? (2015 BAR)

A: NO. Iya may not demand the P250,000 from Betty because the entire obligation has been condoned by the creditor Jun. In a solidary obligation, the remission of the whole obligation obtained by one of the solidary debtors does not entitle him to reimbursement from his co-debtors. (Art. 1220, NCC)

Q: Juancho, Don, and Pedro borrowed P150,000 from their friend Cita to put up an internet café, orally promising to pay her the full amount after one year. Because of their lack of business know-how, their business collapsed. Juancho and Don ended up penniless, but Pedro was able to borrow money and put up a restaurant which did well. Can Cita demand that Pedro pay the entire obligation since he, together with the two others, promised to pay the full amount after one year? Defend your answer. (2015 BAR)

A: NO. The obligation in this case is presumed to be joint. The concurrence of two or more creditors or two or more debtors in one and the same obligation does not imply that each one of the former has the right to demand, or that each one of the latter is bound to render the entire compliance of the prestation. (Art. 1207, NCC) In a joint obligation, there is no mutual agency among the joint debtors such that if one of them is insolvent the others shall not be liable for his share.

Q: Cebu Asiancars Inc., with the conformity of the lessor, used the leased premises as collateral to secure payment of a loan which Asiancars may obtain from any bank, provided that the proceeds of the loan shall be used solely for the construction of a building which, upon the termination of the lease or the voluntary surrender of the leased premises before the expiration of the contract, shall automatically become the property of the lessor. Meeting financial difficulties and incurring an outstanding balance on the loan, Asiancars conveyed ownership of the building on the leased premises to MBTC, by way of "dacion en pago." Is the dacion en pago by Asiancars in favor of MBTC valid?

A: YES. MBTC was a purchaser in good faith. MBTC had no knowledge of the stipulation in the lease contract. Although the same lease was registered and duly annotated, MBTC was charged with constructive knowledge only of the fact of the lease of the land and not of the specific provision stipulating transfer of ownership of the building to the Jaymes upon termination of the lease. While the alienation was in violation of the stipulation in the lease contract between the Jaymes and Asiancars, MBTC’s own rights could not be prejudiced by Asiancars’ actions unknown to MBTC. Thus, the transfer of the building in favor of MBTC was valid and binding. (Jayme v. CA, G.R. No. 128669, 04 Oct. 2002)

Q: G & P Builders obtained a loan from Metrobank and mortgaged parcels of land as collateral. The parties executed a Memorandum of Agreement where they agreed that some parcels of the land mortgaged would be released and sold. The proceeds amounting to P15,000,000.00 were deposited with Metrobank. Elite Union and Metrobank entered into a Loan Sale and Purchase Agreement where the latter sold G & P’s loan account to Elite Union. Metrobank claims that it is still entitled to the P15,000,000.00 proceeds despite the sale of G & P’s loan account to Elite Union. Is Metrobank entitled to the P15,000,000.00 deposit?

A: NO. Through the assignment of credit, the new creditor is entitled to the rights and remedies available to the previous creditor. Moreover, under Art. 1627 of the NCC, "the assignment of a credit includes all the accessory rights, such as a guaranty, mortgage, pledge, or preference." The Loan Sale and Purchase Agreement entitled Elite Union to all the rights and interests that petitioner had as a creditor of respondent G & P, including the securities of the loan account. What was sold to Elite Union under the Loan Sale and Purchase Agreement was respondent G & P's total loan obligation inclusive of the remaining securities and proceeds from the sale of some of the securities as stated in the first MOA. (MBTC v. G & P Builders, Incorporated, G.R. No. 189509, 23 Nov. 2015)

Q: Northwest Airlines, through its Japan Branch, entered into an International Passenger Sales Agency Agreement with CF Sharp, authorizing the latter to sell its air transport tickets. CF Sharp failed to remit the proceeds of the ticket sales, thus, Northwest Airlines filed a collection suit before the Tokyo District Court which rendered judgment ordering CF Sharp to pay 83,158,195 Yen and damages for the delay at the rate of 6% per annum. Unable to execute the decision in Japan, Northwest Airlines filed a case to enforce said foreign judgment with the RTC of Manila. What is the rate of exchange that should be applied for the payment of the amount?

A: The repeal of R.A. No. 529 by R.A. No. 8183 has the effect of removing the prohibition on the stipulation of currency other than Philippine currency, such that obligations or transactions may now be paid in the currency agreed upon by the parties. Just like R.A. No. 529, however, the new law does not provide for the applicable rate of exchange for the conversion of foreign currency-incurred obligations in their peso equivalent. It follows, therefore, that the jurisprudence established in R.A. No. 529 regarding the rate of conversion remains applicable. Thus, in Asia World Recruitment, Inc. v. NLRC (G.R. No. 113363, 24 Aug. 1999), the SC, applying R.A. No. 8183, sustained the ruling of the NLRC that obligations in foreign currency may be discharged in Philippine currency based on the prevailing rate at the time of payment. It is just and fair to preserve the real value of the foreign exchange-incurred obligation to the date of its payment. (C.F. Sharp & Co., Inc. v. Northwest Airlines, Inc., G.R. No. 133498, 18 Apr. 2002).

Q: Diaz & Company obtained a loan from Pacific Banking Corp which was secured by a real estate mortgage. ABC rented an office space in the building constructed on the properties covered by the mortgage contract. The parties then agreed that the monthly rentals shall be paid directly to the mortgagee for the lessor's account. Thereafter, FEBTC purchased the credit of Diaz & Company in favor of PaBC, but it was only after two years that Diaz was informed about it. Diaz asked the FEBTC to make an accounting of the monthly rental payments made by Allied Bank. Diaz tendered to FEBTC the amount of P1, 450, 000. 00 through an Interbank check, in order to prevent the imposition of additional interests, penalties and surcharges on its loan but FEBTC did not accept it as payment, instead, Diaz was asked to deposit the amount with the FEBTC’s Davao City Branch Office. Was there a valid tender of payment?

A: YES, there was a valid tender of payment. Jurisprudence holds that, generally, a check does not constitute legal tender and that a creditor may validly refuse it. It must be emphasized, however, that this dictum does not prevent a creditor from accepting a check as payment. In other words, the creditor has the option and the discretion of refusing or accepting it. (FEBTC v. Diaz Realty Inc., G.R. No. 138588, 23 Aug. 2001)

Q: Dorotea leased portions of her 2,000 sq. m. lot to Monet, Kathy, Celia and Ruth for five (5) years. Two (2) years before the expiration of the lease contract, Dorotea sold the property to PM Realty and Development Corp. The following month, Dorotea and PM Realty stopped accepting rental payments from all the lessees because they wanted to terminate the lease contracts. Due to the refusal to accept rental payments, the lessees, Ruth, et al., filed a complaint for consignation of the rentals before the RTC of Manila without notifying Dorotea. Is the consignation valid? (2014 BAR)

A: NO, the consignation is not valid. Art. 1257 of the NCC provides that in order for the consignation of the thing due to release the obligor, it must first be announced to the persons interested in the fulfillment of the obligation. Moreover, Art. 1258 of the same code provides that consignation having been made, the interested parties shall also be notified thereof. In this case, Dorotea, an interested party, was not notified of the consignation. The consignation is therefore not valid for non- compliance with Art. 1257, NCC.

Q: In an ejectment case, X refused to vacate the land, alleging that Y had sold to him the additional area, the payment of which would be effected five years after the execution of a formal deed of sale. However, the parties failed to execute a deed of sale. During the pendency of the action, X deposited the payment for the additional area with the court. Is there a valid consignation?

A: NO, there is no valid consignation. Under Art. 1257 of the NCC, consignation is proper only in cases where an existing obligation is due. In this case, the contracting parties agreed that full payment of purchase price shall be due and payable within five years from the execution of a formal deed of sale. At the time Rodriguez deposited the amount in court, no formal deed of sale had yet been executed by the parties, and, therefore, the five-year period during which the purchase price should be paid had not commenced. In short, the purchase price was not yet due and payable. (Heirs of San Andres v. Rodriguez, G.R. No. 135634, 31 May 2000)

Q: Under a pacto de retro sale, X sold to Y his lot and the building erected thereon. They agreed that half of the consideration shall be paid to the bank to pay off the loan of X. After paying the first installment, Y, instead of paying the loan to the bank, restructured it twice. Eventually, the loan became due and demandable. Thus, X paid the bank. On the same day, Y also went to the bank and offered to pay the loan, but the bank refused to accept the payment. Y then filed an action for consignation without notifying X. Is there a valid consignation by Y of the balance of the contract price?

A: NO, there is no valid consignation by Y of the balance of the contract price. Y filed the petition for consignation against the bank without notifying X, resulting to the former’s failure to prove the payment of the balance of the purchase price and consignation. In fact, even before the filing of the consignation case, Y never notified X of their offer to pay. (Sps. Benos v. Sps. Lawilao, G.R. No. 172259, 05 Dec. 2006)