Far East Bank & Trust Company v. Diaz Realty Inc.
REITERATIONFacts
The Antecedents: Diaz Realty Inc. (Diaz) obtained a loan from Pacific Banking Corporation (PaBC) secured by a real estate mortgage, with Allied Banking Corporation (Allied Bank) agreeing to pay monthly rentals directly to PaBC. PaBC was closed in 1985, and in December 1986, Far East Bank & Trust Company (FEBTC) purchased Diaz's credit, though Diaz was only informed in March 1988. Diaz tendered an Interbank check for P1,450,000.00 on December 14, 1988, as full payment, but FEBTC requested it be deposited pending Central Bank Liquidator approval. Diaz also sought a reduction in the interest rate from 20% to 12% without response. FEBTC later advised converting the deposit to a money market placement, which expired on April 14, 1989. After FEBTC's inaction, Diaz filed a case. Procedural History: The Regional Trial Court (RTC) initially ordered a joint computation of interest, comparison with the deposit, and return of excess, along with cancellation of the mortgage and lease provision. Upon reconsideration, the RTC modified its decision, ordering a joint computation on a different principal amount, comparison with the money market placement, and similar directives, plus attorney's fees and costs. The Court of Appeals (CA) modified the RTC judgment, ordering Diaz to pay FEBTC P1,067,000.00 plus 12% interest from July 9, 1988, until fully paid, directing negotiation of a new lease, and awarding attorney's fees and costs. The CA sustained the RTC's finding of a valid tender of payment and the 12% interest rate from July 9, 1988, due to the account transfer lacking obligor consent, but upheld FEBTC's claim that the mortgage should not be cancelled as the principal obligation was not extinguished, and deemed the lease contract subject to renegotiation. The Petition: FEBTC filed a Petition for Review on Certiorari with the Supreme Court, challenging the CA's rulings on the validity of the tender of payment, the application of settled jurisprudential principles against the tender, the characterization of the transaction as an ineffective novation, the refusal to apply the stipulated interest rate, the irreconcilable error in ordering renegotiation while upholding the mortgage, and asserting that the petition raised questions of fact not reviewable by certiorari.
Issue(s)
Whether the Court of Appeals correctly ruled that the validity of the tender of payment was not properly raised in the trial court and could not thus be raised in the appeal, and whether a valid tender of payment had been made by private respondent. Whether the Court of Appeals correctly found that the transaction between petitioner and PaBC was an assignment of credit, not a novation, and whether the consent of private respondent was necessary therefor. Whether the Court of Appeals erred in refusing to apply the rate of interest freely stipulated upon by the parties to the respondent's obligation, and when the accrual of interest at this rate should stop. Whether the Court of Appeals committed an irreconcilable error in ordering the parties to re-negotiate the terms of the contract while finding at the same time that the mortgage contract containing the lease was valid. Whether the petition, as argued by private respondent, raises questions of fact not reviewable by certiorari.
Ruling
The Supreme Court denied the petition and affirmed the Court of Appeals' Decision with modifications. It ordered Diaz Realty Inc. to pay Far East Bank and Trust Co. its principal loan obligation of P1,067,000.00, with interest computed at 20% per annum until November 14, 1988 (less any interest payments made to PaBC), and thereafter at 12% per annum until fully paid.
Ratio Decidendi
On the validity of the tender of payment: The Court held that while a check is not legal tender, a creditor may accept it as payment. In this case, FEBTC accepted Diaz's check for P1,450,000.00, which was fully funded and honored. FEBTC's insistence that it was a mere deposit, when it was tendered as full payment and subsequently cleared, estopped it from later denouncing the efficacy of the tender. The Court emphasized that a valid tender of payment requires a fusion of intent, ability, and capability to make good the offer, which was demonstrated by Diaz's actions. The subsequent withdrawal of the money did not affect the efficacy of the tender made on November 14, 1988, as FEBTC had accepted the check and converted it into money, keeping it in its possession for several months. Consignation was not necessary because the creditor (FEBTC) accepted the payment. On the nature of the transfer of respondent's account: The Court clarified that the transfer of Diaz's credit from PaBC to FEBTC was an assignment of credit, not a novation. An assignment of credit transfers the credit and its accessory rights without the need for the debtor's consent, and does not involve changes in the original agreement. FEBTC, as the assignee, acquired all of PaBC's rights against Diaz, subject to the original terms of the Promissory Note. On the applicable interest rate: The Court ruled that FEBTC, as the assignee, was entitled to the stipulated interest rate of 20% per annum as per the Promissory Note. However, the accrual of interest at this rate should stop on November 14, 1988, the date of the valid tender of payment. Any interest payments made by Diaz to PaBC from December 1986 to July 8, 1988, should be deducted from the total amount owed. Thereafter, the interest rate should be computed at 12% per annum until full payment. On the status of the mortgage contract: The Court held that the Real Estate Mortgage and the provision in the Contract of Lease regarding the application of rent payments to the indebtedness should subsist until the full and final settlement of the obligation. This was because the principal obligation had not yet been fully extinguished at the time of the ruling, and the mortgage secured this principal obligation. The parties were free to renegotiate or terminate these contracts after full settlement. The petition raises questions of law, not fact, and is thus reviewable by certiorari.
Main Doctrine
For a valid tender of payment, there must be a fusion of intent, ability, and capability to make good such offer, which must be absolute and cover the amount due. While a check is not legal tender, a creditor who accepts a fully funded check after the debtor's manifestation of its purpose to settle an obligation is estopped from later denouncing the efficacy of such tender of payment.