Payment/ Performance

Bognot v. RRI Lending Corporation,

G.R. No. 180144, September 24, 2014 Brion, J.:
FACTS:
In September 1996, Leonardo Bognot and his younger brother, Rolando Bognot
applied for and obtained a loan of P500,000.00 from RRI Lending, payable on November
30, 1996. The loan was evidenced by a promissory note and was secured by a post
dated check dated November 30, 1996.
Evidence on record shows that Leonardo renewed the loan several times on a monthly
basis. He paid a renewal fee of P54,600.00 for each renewal, issued a new post-dated
check as security, and executed and/or renewed the promissory note previously issued.
RRI Lending on the other hand, cancelled and returned to Leonardo the post-dated
checks issued prior to their renewal.
Leonardo purportedly paid the renewal fees and issued a post-dated check dated June
30, 1997 as security. As had been done in the past, RRI Lending superimposed the date
"June 30, 1997" on the promissory note to make it appear that it would mature on the
said date.
Several days before the loan’s maturity, Rolando’s wife, Julieta, went to the respondent’s
office and applied for another renewal of the loan. She issued in favor of RRI Lending a
promissory note and a check dated July 30, 1997, in the amount of P54,600.00 as
renewal fee.
On the excuse that she needs to bring home the loan documents for the Bognot siblings’
signatures and replacement, Julieta asked the RRI Lending clerk to release to her the
promissory note, the disclosure statement, and the check dated July 30, 1997. Julieta,
however, never returned these documents nor issued a new post-dated check.
Consequently, RRI Lending sent Leonardo follow-up letters demanding payment of the
loan, plus interest and penalty charges. These demands went unheeded.
In his Answer, Leonardo, claimed, among other things, that the complaint states no
cause of action because RRI Lending’s claim had been paid, waived, abandoned or
otherwise extinguished, and that the one (1) month loan contracted by Rolando and his
wife in November 1996 which was lastly renewed in March 1997 had already been fully
paid and extinguished in April 1997.
ISSUE:
Whether the parties’ obligation was extinguished by payment
RULING:
Jurisprudence tells us that one who pleads payment has the burden of proving it; the
burden rests on the defendant to prove payment, rather than on the plaintiff to prove
non-payment. Indeed, once the existence of an indebtedness is duly established by
evidence, the burden of showing with legal certainty that the obligation has been
discharged by payment rests on the debtor.
In the present case, Leonardo failed to satisfactorily prove that his obligation had already
been extinguished by payment. As the CA correctly noted, the petitioner failed to present
any evidence that RRI Lending had in fact encashed his check and applied the proceeds
to the payment of the loan. Neither did he present official receipts evidencing payment,
nor any proof that the check had been dishonored.

We note that the petitioner merely relied on the respondent’s cancellation and return to
him of the check dated April 1, 1997. The evidence shows that this check was issued to
secure the indebtedness. The acts imputed on the respondent, standing alone, do not
constitute sufficient evidence of payment.
Article 1249, paragraph 2 of the Civil Code provides:
xxxx
The delivery of promissory notes payable to order, or bills of exchange or other
mercantile documents shall produce the effect of payment only when they have been
cashed, or when through the fault of the creditor they have been impaired. (Emphasis
supplied)
Also, we held in Bank of the Philippine Islands v. Spouses Royeca:
Settled is the rule that payment must be made in legal tender. A check is not legal tender
and, therefore, cannot constitute a valid tender of payment. Since a negotiable
instrument is only a substitute for money and not money, the delivery of such an
instrument does not, by itself, operate as payment. Mere delivery of checks does not
discharge the obligation under a judgment. The obligation is not extinguished and
remains suspended until the payment by commercial document is actually realized.
(Emphasis supplied)

Although Article 1271 of the Civil Code provides for a legal presumption of renunciation
of action (in cases where a private document evidencing a credit was voluntarily
returned by the creditor to the debtor), this presumption is merely prima facie and is not
conclusive; the presumption loses efficacy when faced with evidence to the contrary.

Moreover, the cited provision merely raises a presumption, not of payment, but of the
renunciation of the credit where more convincing evidence would be required than what
normally would be called for to prove payment. Thus, reliance by the petitioner on the
legal presumption to prove payment is misplaced.

To reiterate, no cash payment was proven by the petitioner. The cancellation and return
of the check dated April 1, 1997, simply established his renewal of the loan – not the fact
of payment. Furthermore, it has been established during trial, through repeated acts, that
the respondent cancelled and surrendered the post-dated check previously issued
whenever the loan is renewed.

Compensation

MONDRAGON PERSONAL SALES, INC. v. VICTORIANO S. SOLA, JR.

G.R. no. 174882, January 21, 2013 Peralta, J.

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.

RULING:

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:

·0 That each one of the obligors be bound principally, and that he be at the same
time a principal creditor of the other;
·1 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;
·2 That the two debts be due;
·3 That they be liquidated and demandable;
·4 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.

Novation

Arco Pulp and Paper Co., Inc. v. Lim,

G.R. No. 206806, June 25, 2014 LEONEN, J.:
FACTS:

Lim works in the business of supplying scrap papers, cartons, and other raw materials,
under the name Quality Paper and Plastic Products, Enterprises, to factories engaged in
the paper mill business. Lim delivered scrap papers to Arco Pulp and Paper Company,
Inc. The parties allegedly agreed that Arco Pulp and Paper would either pay Dan T. Lim
the value of the raw materials or deliver to him their finished products of equivalent
value. Arco Pulp and Paper and a certain Eric Sy executed a memorandum of
agreement where Arco Pulp and Paper bound themselves to deliver their finished
products to Megapack Container Corporation, owned by Eric Sy. The liability of Arco
Pulp was now transferred to Megapack in paying Lim. Dan T. Lim sent a letter to Arco
Pulp and Paper demanding payment but no payment was made to him. Now Lim filed a
case against Arco Pulp. The Arco Pulp now contends that their agreement was novated
because of the MOA agreed upon Sy and Arco.

ISSUE:

Whether or not the obligation between the parties was an alternative obligation

RULING:

Yes. The rule on alternative obligations is governed by Article 1199 of the Civil Code,
which states:

Article 1199. A person alternatively bound by different prestations shall completely

perform one of them.

The creditor cannot be compelled to receive part of one and part of the other
undertaking.

In an alternative obligation, there is more than one object, and the fulfillment of one is
sufficient, determined by the choice of the debtor who generally has the right of election.”
The right of election is extinguished when the party who may exercise that option
categorically and unequivocally makes his or her choice known.