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PHILIPPINE NATIONAL BANK v. LILIBETH S. CHAN

FACTS:

Respondent Lilibeth S. Chan leased a commercial building to petitioner Philippine National Bank (PNB) for a period of five years. After the lease expired, PNB continued to occupy the property on a month-to-month basis. On January 22, 2002, respondent obtained a loan from PNB secured by a Real Estate Mortgage over the leased property. The loan was subsequently increased and an "Amendment to the Real Estate Mortgage by Substitution of Collateral" was executed, substituting the mortgage with a new one over another property. Respondent filed a complaint for unlawful detainer against PNB, alleging non-payment of rentals. PNB claimed that the rental proceeds were applied to offset respondent's outstanding loan. The Metropolitan Trial Court (MeTC) ordered PNB to pay the accrued rentals with interest. PNB appealed to the Regional Trial Court (RTC) but initiated foreclosure proceedings on the mortgaged property. The property was sold to PNB as the highest bidder. Respondent claimed that her loan was fully paid when PNB bought the mortgaged property. The RTC affirmed the MeTC ruling and granted the issuance of a Writ of Execution. PNB filed a Petition for Review before the Court of Appeals (CA), which remanded the case to the MeTC for further determination of the deficiency in payment. The CA also held PNB liable to pay legal interest but deleted the award of attorney's fees. PNB filed a petition for review on certiorari assailing the CA's decision and resolution.

ISSUES:

  1. Whether 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.

  2. Whether PNB incurred delay in the payment of rentals to the respondent, making it liable to pay legal interest to the latter.

  3. Whether PNB is entitled to the disputed rental proceeds in order to cover the alleged deficiency in payment of the respondent's liability after the foreclosure proceedings.

RULING:

  1. The Court of Appeals found that PNB did not properly consign the disputed rental payments in a non-drawing savings account, which does not meet the requirement for legal consignation. Therefore, PNB is not considered to have properly consigned the rental payments.

  2. The Court of Appeals ruled that PNB incurred delay in the payment of rentals to the respondent, making PNB liable to pay legal interest to the latter.

  3. The Court of Appeals remanded the case to the MeTC for the proper reception of evidence and determination of the deficiency in payment of the respondent's liability after the foreclosure proceedings.

PRINCIPLES:

  • Consignation refers to the act of depositing the object of an obligation with a competent court, such as the Clerk of Court, when the creditor refuses to accept the payment or when the creditor is unknown or absent.

  • Consignation is a mode of payment which relieves the debtor from liability for interest, and for the costs of collection or damage due to the creditor's delay, provided the debtor complies with the requirements of law.

  • Legal interest is the amount that the law or the contract stipulates the debtor is required to pay in cases of delay in the payment of an obligation.

  • The determination of any deficiency in payment of a debt after foreclosure proceedings requires a thorough examination of the evidence and calculation of the amounts involved.