University of the Philippines College of Law

Obligations and Contracts I-D; MST IGNACIO

Victor Yam & Yek Sun Lent (doing business under the name and style of Philippine Printing Works)
Case Name
v. CA and Manphil Investment Corp.
Topic Condonation and Remission; Requisites – When formalities are required
Case No. | Date GR 104726 | Feb. 11, 1999
Ponente Mendoza, J.
Petitioners entered into a loan agreement with Respondent Manphil for PHP 500,000. Eventually,
they entered into a second loan agreement for PHP 300,000 which contained identical provisions
as the first. Petitioners then wrote to Manphil, proposing to settle their obligation. To this, Manphil
sent a counter-offer, saying that the penalty will be reduced if petitioners are able to pay their
obligation before July 30, 1986. At this point, the total obligation was PHP PHP727,001. Petitioners
alleged that after the counter-offer was made, Manphil’s president Sobrepeñas agreed to waive
the penalties and the service charges, provided that the petitioners will pay the principal and
interest amounting to PHP 410,854.47 (ie condonation). As such, petitioners made a payment
through a check with the annotation “full payment of IGLF loan.”
Case Summary
Despite this, two demand letters were sent to the petitioners for the payment of their obligation,
or the remaining balance of PHP 266,146.8. The Supreme Court, in ruling against the petitioners
and affirming the CA, held that the petitioners are still liable for the balance despite the alleged
condonation made by Sobrepeñas. First, Art. 1270 states that a condonation is governed by the
rules which govern inofficious donations. In relation to this, Art. 748 states that a donation and the
acceptance of a movable must be in writing, otherwise it shall be void. Art. 417 further states that
obligations, actually referring to credits, are considered movable property. Since the alleged
condonation was not reduced into writing, then the petitioners are still liable for the balance. The
annotation on the check (“full payment of IGLF loan”) does not bind Manphil.
Decision CA decision affirmed, ruled against petitioners.
• Art. 1270 – Condonation or remission is essentially gratuitous, and requires the acceptance by
the obligor. It may be made expressly or impliedly.
One and the other kinds shall be subject to the rules which govern inofficious donations.
Express condonation shall, furthermore, comply with the forms of donation
Doctrine
• Art 748 (3) states that the donation and acceptance of a movable, the value of which exceeds
PHP 5,000, must be in writing, otherwise the same shall be void.
• Art. 417, (1) states that obligations, actually referring to credits, are considered movable
property.

RELEVANT FACTS
• May 10, 1979 – the parties entered into a loan agreement with assumption of solidary liability.
o Petitioners Yam etc. were given a PHP 500,000 loan by Manphil, for 12% annual interest, 2% monthly
penalty, 1.5% monthly service charge, and 10% attorney’s fees. This was called the first “Industrial
Guarantee and Loan Fund (IGLF). This was secured by a chattel mortgage on the printing machinery in
petitioners’ establishment.
• A second IGLF loan of PHP 300,000 was acquired by the petitioners, evidenced by 2 promissory notes dated July 3,
1981 and September 30, 1981. For this purpose, a new loan agreement was entered by the parties containing
identical provisions as the First IGLF. However, the annual interest was increased to 14% and the service charge
was decreased to 1% per annum.
• April 2, 1985 – the first IGLF was paid ( = PHP 500,000)
 University of the Philippines College of Law
Obligations and Contracts I-D; MST IGNACIO
• November 4, 1985 – Manphil was placed under receivership, with Lirio and Destajo as receiver and in-house
examiner.
• May 17, 1986 – Petitioners made a partial payment of PHP50,000 on the second IGLF.
• The petitioners wrote to Manphil, proposing to settle their obligation.
o July 2, 1986 – Manphil replied with a counter offer – that the penalty charges would be reduced up to
140,000 if they are able to pay their obligation on or before July 30, 1986.
o As of July 31, 1986, the total liability of the petitioners amounted to PHP727,001.35 On this day they also
paid PHP 410,854.47 through a Pilipinas Bank check. The receipt of the payment was acknowledged by
Destajo. The words “full payment of IGLF loan” was annotated on the check.
• Two demand letters were sent to the petitioners, seeking the payment of the balance of PHP 266,146.88. Since
there was no response, Manphil filed a case with the RTC.
o Petitioners’ claim: They claim that they have already paid their obligation in full. According to them, Victor
Yam and his wife Elena met with Sobrepeñas, the president of Manphil, after they received the counter-
offer to reduce the penalties (July 2, 1986 counter-offer). The spouses Yam allege that Sobrepeñas agreed
to waive the penalties and the service charges, provided that the petitioners paid the principal and interest
computed as of July 21, 1986, less the PHP 50,000 that they paid on April 2. According to the petitioners,
this is why the words “full payment of IGLF Loan” was annotated on the check.
• RTC: Petitioners were ordered to pay jointly and severally the principal loan balance.
• CA: Affirmed RTC in toto
RATIO DECIDENDI
Issue Ratio
W/N petitioners are YES, SINCE THE ALLEGED AGREEMENT TO CONDONE THE PHP 266,146.88 OF THE SECOND
liable for the payment IGLF LOAN WAS NOT REDUCED INTO WRITING.
of the penalties and • Art. 1270 (2) provides that express condonation must comply with the forms of a
service charges on donation.
their loan which, as of • Art 748 (3) states that the donation and acceptance of a movable, the value of which
July 31, 1986, exceeds PHP 5,000, must be in writing, otherwise the same shall be void.
amounted to PHP • Art. 417, (1) states that obligations, actually referring to credits, are considered
266,146.88 (are they movable property.
liable for the balance)

But what about the notation on the check? Is this considered documentary evidence?
• NO, it merely states the petitioner’s intention to make the payment. It does not bind
respondent Manphil.
But didn’t the central bank examiner assigned to Manphil (Christina Destajo), sign the the
voucher?
• Although she did sign the voucher/check, this was just to acknowledge the receipt of
the payment. This cannot be held to mean that she assented to the “full payment”
made by the petitioners.

NOTE: The alleged agreement to condone the amount in question was supposedly entered
in July 1986. This was after Manphil was put under receivership. In Villanueva v. CA, the
appointment of a receiver operates to suspend the authority of the corporation, its
directors, and officers over its property and effects. This is because now, the authority is
reposed in the receiver assigned to the corporation. Therefore, Sobrepeñas had no
authority to condone the debt.

RULING: CA decision is affirmed (ruled AGAINST petitioners).