G.R. No. 9759 - Philippine Railway Co. vs. Andrada

On December 27, 1990, petitioner Nereo J. Paculdo and respondent Bonifacio C. Regalado executed a 25-year lease (Jan. 1, 1991–Dec. 31, 2015) of a 16,478 sqm parcel with wet market in Fairview Park, Quezon City, at P450,000/month for the first five years, with 2% monthly penalty on late payments.
Concurrently, petitioner leased eleven other properties from respondent (ten within Fairview compound, one on Quirino Highway) and purchased eight heavy equipment units for an aggregate P1,020,000.

Petitioner failed to pay P361,895.55 (May 1992) and the June–July 1992 rentals.
Respondent sent demand letters on July 6 and July 17, 1992, threatening lease cancellation if arrears not settled within 15 days.
Unbeknownst to petitioner, on August 3, 1992 respondent mortgaged the leased land and P35,000,000 improvements to Monte de Piedad Savings Bank for a P20,000,000 loan.
From August 12, 1992 onward, respondent refused to accept petitioner’s rent payments.

August 20, 1992 – Petitioner filed in the RTC (Quezon City) for injunction and damages to protect possession.
Same date – Respondent filed ejectment complaint in the Metropolitan Trial Court (MTC), attaching the July demand letters; later withdrew and refiled on April 22, 1993 claiming arrears of P3,924,000 (Aug 1992–Mar 1993).
January 31, 1994 – MTC ordered ejectment, payment of P527,119.27 arrears (as of June 30, 1992), P450,000/month plus interest until vacation, P5,000,000 attorney’s fees, and costs.
Petitioner appealed to RTC Branch 220; on July 6, 1994, the RTC affirmed the MTC decision and issued a writ of execution; petitioner vacated the premises by July 12, 1994.
July 21, 1994 – Petitioner filed a petition for review in the Court of Appeals (CA); on February 10, 1995, CA dismissed the petition, ruling that petitioner had impliedly consented to respondent’s application of payments to other obligations. A motion for reconsideration was denied on February 9, 1996.

As of July 2, 1992, petitioner had paid P10,949,447.18. If applied solely to rent (P450,000×19 months=P8,550,000) and security deposit (P1,350,000), an excess of P1,049,447.18 remained.
Respondent relied on two letters:

July 15, 1991 – proposed application to both Fairview rent and heavy equipment (no petitioner signature).
November 19, 1991 – proposed application to Fairview rent, Quirino lot taxes, and heavy equipment (petitioner signed).

Petitioner contended that he never consented to apply payments to non-due obligations (heavy equipment) and that silence did not constitute consent.

Was petitioner truly in arrears in rentals on the Fairview wet market at the time respondent filed the ejectment complaint?
Did respondent validly apply petitioner’s payments to obligations other than the Fairview rent?
Does a debtor’s silence or failure to object to a creditor’s statement of account constitute consent to the application of payments?