G.R. No.

171298 April 15, 2013

SPOUSES OSCAR and THELMA CACAYORIN, Petitioners,
vs.
ARMED FORCES AND POLICE MUTUAL BENEFIT ASSOCIATION, INC., Respondent.
Obligation; Extinguishment of obligations; consignation; when tender of payment not necessary; judicial
in character; difference between consignation and tender of payment. Under Article 1256 of the Civil
Code, the debtor shall be released from responsibility by the consignation of the thing or sum due,
without need of prior tender of payment, when the creditor is absent or unknown, or when he is
incapacitated to receive the payment at the time it is due, or when two or more persons claim the same
right to collect, or when the title to the obligation has been lost.

DEL CASTILLO, J .:

FACTS: Oscar Cacayorin is a member of Armed Forces and Police Mutual Benefit Association Inc.
(AFPMBA). In 1994, Oscar and his wife, Thelma applied to purchase a piece of property owned
by AFPMBA located in Puerto Princesa through a loan facility. To gain financing, the petitioners
entered a Loan and Mortgage Agreement with Rural Bank of San Teodoro under the auspices of
PAG-IBIG.

The Rural Bank thereafter issued a letter of guaranty informing AFPMBAI that the proceeds of
petitioners approved loan in the amount of P77,418.00 shall be released to AFPMBAI after title
to the property is transferred in petitioners name and after the registration and annotation of the
parties mortgage agreement. In response to such letter of guaranty, AFPMBAI executed in
petitioners favor a Deed of Absolute Sale, and a new title was also issued in petitioners name,
with the corresponding annotation of their mortgage agreement with the Rural Bank.

Unfortunately, the arrangement between PAG-IBIG and the Rural bank did not push through; the
Rural bank was closed and was placed under receivership by the Philippine Deposit Insurance
Corporation (PDIC). Despite the closure though, AFPMBAI somehow was able to take
possession of petitioners loan documents.

It so happened also that after AFPMBAI made a demand for payment; petitioners were unable to
pay the loan/consideration for the property.

In July 2003, petitioners filed a Civil Case with the RTC about a Complaint for consignation of loan
payment, recovery of title and cancellation of mortgage annotation against AFPMBAI, PDIC and the
Register of Deeds of Puerto Princesa City.

Petitioners alleged in their Complaint that as a result of the Rural Banks closure and PDICs claim
that their loan papers could not be located, they were left in a quandary as to where they should tender
full payment of the loan and how to secure cancellation of the mortgage annotation. In response to this
AFPMBAI filed a Motion to Dismiss, claiming that petitioners Complaint falls within the jurisdiction
of the Housing and Land Use Regulatory Board (HLURB) and not the Puerto Princesa RTC, as it was
filed by petitioners in their capacity as buyers of a subdivision lot and it prays for specific
performance of contractual and legal obligations decreed under Presidential Decree No. 957

Puerto Princessa RTC decided in favor of the Cacayorins, declaring that since title has been
transferred in the name of petitioners and the action involves consignation of loan payments, it
possessed jurisdiction to continue with the case. It further held that the only remaining unsettled
transaction is between petitioners and PDIC as the appointed receiver of the Rural Bank. AFPMBAI
filed a motion for reconsideration which was later denied by the RTC.

The Court of Appeals on the other hand held an opposite decision. It declared that the RTC has no
jurisdiction to hear the case and that such jurisdiction is exclusive to the Housing and Land Use
Regulatory Board (HLURB).

ISSUE: Whether or not there is a valid consignation albeit prior tender of payment
Whether or not the court can exercise authority over the issue of consignation with regards to
contractual and legal obligations of parties in a sale of subdivision lots

HELD: AFFIRMATIVE. Under Article 1256 of the Civil Code, the debtor shall be released from
responsibility by the consignation of the thing or sum due, without need of prior tender of payment,
when the creditor is absent or unknown, or when he is incapacitated to receive the payment at the time
it is due, or when two or more persons claim the same right to collect, or when the title to the
obligation has been lost.
Applying Article 1256 to the petitioners case, with regards to their allegations in their Complaint, the
Court finds that a case for consignation has arised, as it now appears that there are two entities which
petitioners must deal with in order to fully secure their title to the property: 1) the Rural Bank (through
PDIC), which is the apparent creditor under the July 4, 1994 Loan and Mortgage Agreement; and 2)
AFPMBAI, which is currently in possession of the loan documents and the certificate of title, and the
one making demands upon petitioners to pay. Clearly, the allegations in the Complaint present a
situation where the creditor is unknown, or that two or more entities appear to possess the same right
to collect from petitioners. Whatever transpired between the Rural Bank or PDIC and AFPMBAI in
respect of petitioners loan account, if any, such that AFPMBAI came into possession of the loan
documents , it appears that petitioners were not informed thereof, nor made privy thereto.
On the question of jurisdiction, Supreme Court decided that petitioners case should be tried in the
Puerto Princesa RTC, and not the HLURB. Consignation is necessarily judicial, as the Civil Code
itself provides that consignation shall be made by depositing the thing or things due at the disposal of
judicial authority, thus:
Art. 1258. Consignation shall be made by depositing the things due at the disposal of judicial
authority, before whom the tender of payment shall be proved, in a proper case, and the announcement
of the consignation in other cases