Case Digest: PNB vs Chan, 820 SCRA 161, 2017, G.R. No. 206037

PNB vs Chan, 820 SCRA 161, 2017, G.R. No. 206037, March 13, 2017

Subject: Obligations and Contracts

FACTS

Lilibeth S. Chan is the owner of a three-story commercial building in Paco, Manila which she leased the building to PNB for a five-year period from December 15, 1999, to December 14, 2004. After the lease expired, PNB continued to occupy the property on a month-to-month basis and vacated the premises on March 23, 2006.

In January 2002, Lilibeth obtained a loan of P1,500,000.00 from PNB, which was secured by a Real Estate Mortgage on the leased property. She also executed a Deed of Assignment, transferring the rental payments to PNB. Later, the loan amount was increased to P7,500,000.00, and an "Amendment to the Real Estate Mortgage by Substitution of Collateral" was executed, replacing the mortgage on the leased property with a mortgage on another parcel of land in Paco, Manila.

On August 26, 2005, Lilibeth filed an Unlawful Detainer Complaint against PNB, alleging non-payment of monthly rentals from October 2004 to August 2005. PNB claimed that it applied the rental proceeds to offset Lilibeth's outstanding loan. PNB also received a demand letter from a person claiming to be the new owner of the property and deposited the rentals in a separate account until the ownership issue was resolved.

The MeTC held a hearing where the parties agreed to apply the rental proceeds from October 2004 to January 15, 2005, to Lilibeth's outstanding loan. PNB also consigned the amount of P1,348,643.92, representing the rentals due from January 16, 2005, to February 2006, with the court.

The MeTC ruled that PNB should pay Lilibeth the accrued rentals with interest and attorney's fees. PNB appealed the decision to the Regional Trial Court (RTC) while initiating foreclosure proceedings on the mortgaged property. The RTC affirmed the MeTC ruling and ordered the issuance of a Writ of Execution.

PNB filed a motion for reconsideration, but the RTC denied it. PNB then filed a Petition for Review with the Court of Appeals (CA), challenging the RTC's decision. The CA remanded the case to the MeTC to determine if there was a deficiency in payment after the foreclosure sale and ordered PNB to pay legal interest on the rentals.

PNB filed a partial Motion for Reconsideration, which the CA denied. As a result, PNB filed a Petition for Review on Certiorari before the Supreme Court, seeking to reverse the CA's decision and resolution.

ISSUE

Whether or not PNB properly consigned the disputed rental payments in the amount of P1,348,643.92 with the Office of the Clerk of Court of the MeTC of Manila

RULING

No.

Consignation is the act of depositing the amount or thing due with the court when the creditor cannot or refuses to accept payment. It generally requires a prior tender of payment, but under Article 1256 of the Civil Code, consignation alone is sufficient in certain circumstances. These include when the creditor is absent, unknown, or does not appear at the place of payment; when the creditor is incapacitated to receive payment; when the creditor unjustly refuses to give a receipt; when two or more persons claim the same right to collect; or when the title of the obligation has been lost.

For consignation to be valid, the debtor must fulfill the following requirements: (1) There must be a debt due; (2) Valid prior tender of payment, unless consignation is made due to a legal cause provided in Article 1256; (3) Previous notice of the consignation must be given to the interested parties; (4) The amount or thing due must be placed at the disposal of the court; and, (5) The interested parties must be notified of the consignation. Failure to meet any of these requirements renders the consignation ineffective.

In this case, the evidence shows that PNB had an obligation to pay the respondent monthly rentals amounting to P1,348,643.92 from January 16, 2005, to March 23, 2006. PNB had the option to pay the rentals directly to the respondent or apply them as payment for the respondent's loan, but it did neither. Instead, PNB deposited the rentals in a non-drawing savings account due to a claim by another party. PNB then consigned the amount of P1,348,643.92 with the Office of the Clerk of Court of the MeTC of Manila on May 31, 2006.

It is important to note that PNB's deposit of the rentals in a non-drawing savings account does not qualify as consignation under the law because it does not place the amount at the disposal of the court. Consignation is a judicial act and can only be done in court. Consequently, PNB's obligation to pay rent for the specified period remained unpaid as the deposit of the rentals did not constitute payment.

It should be emphasized that PNB's obligation to pay the rentals had already fallen due and demandable before it consigned the rental proceeds on May 31, 2006. Although consignation has a retroactive effect, the payment is considered made only at the time of the deposit with the court or when it is placed at the disposal of the judicial authority. Therefore, PNB's payment of the rentals can only be considered to have been made after May 31, 2006.

Considering the belated consignation, PNB is clearly in default for failing to pay the monthly rentals from January 16, 2005, to March 23, 2006, when it vacated the leased property. As a result, PNB is liable to pay interest in accordance with Article 2209 of the Civil Code. Article 2209 states that if the debtor incurs delay in the payment of a sum of money, he shall be liable to pay the agreed interest or, in the absence of stipulation, the legal interest at 6% per annum. Since there was no stipulated interest in this case, PNB is liable to pay the legal interest at 6% per annum from January 16, 2005, to May 30, 2006.