G.R. No. 156846 - Pabugais vs. Sahijwani

Case Summary (G.R. No. 156846)

Breach, attempted return of option fee, and dispute over tender

Petitioner failed to deliver the required documents and sought to return the P600,000.00 by issuing a Far East Bank & Trust Company check that was dishonored. Petitioner later contends he twice tendered payment of P672,900.00 (P600,000 principal plus 18% per annum interest computed from December 3, 1993 to August 3, 1994) by manager’s check (No. 088498), initially through a messenger on August 3, 1994 and then via DHL on August 8, 1994, and later advised respondent by letter on August 11, 1994 that he was consigning the amount with the Regional Trial Court of Makati. Respondent’s counsel acknowledged receipt of petitioner’s August 5, 1994 letter but denied that a check was attached and asserted that the amount tendered was insufficient and that petitioner had verbally promised additional penalties (3% monthly interest and 25% attorney’s fees) beyond the agreed 18% per annum.

Consignation action and trial court ruling

On August 15, 1994 petitioner filed a complaint for consignation. The Regional Trial Court (Makati, Branch 64) on November 29, 1996 declared the consignation invalid for failure to prove a valid tender and refusal by respondent to accept payment. The trial court further held that even assuming refusal, petitioner’s manager’s check was not legal tender and thus the tender was defective. The trial court ordered petitioner to pay respondent P600,000.00 with 18% per annum interest from December 3, 1993 until fully paid, plus moral damages and attorney’s fees.

Appeal, assignment to counsel, and motions to withdraw consigned funds

Petitioner appealed to the Court of Appeals. During the appeal, petitioner substituted counsel and executed a Deed of Assignment (December 20, 2001) assigning part of the P672,900.00 consigned with the trial court as partial payment of his new counsel’s attorney’s fees. Petitioner then filed an Ex Parte Motion to Withdraw Consigned Money (January 7, 2002). Counsel assigned (Atty. Salvador P. De Guzman, Jr.) filed a Motion to Intervene, claiming the consigned funds by virtue of the assignment. The Court of Appeals initially denied the motion to withdraw and affirmed the trial court’s decision with modifications on damages and fees, but on reconsideration the Court of Appeals, in an Amended Decision dated January 16, 2003, declared the consignation valid and held that petitioner’s obligation under the default clause was extinguished.

Issues presented to the Supreme Court

The Supreme Court framed the dispositive issues as: (1) whether there was a valid consignation; and (2) whether petitioner could withdraw the consigned amount as a matter of right.

Legal requisites for consignation

The Court reiterated the established requisites for effective consignation: (1) a debt due; (2) consignation made because the creditor refused or was absent or incapacitated or multiple claimants existed or the title was lost; (3) prior notice of consignation to the person interested; (4) placing the amount at the disposal of the court; and (5) notifying the person interested after consignation. The Court emphasized that failure to prove any of these elements is sufficient to render consignation ineffective, and that consignation generally presupposes a prior tender of payment.

Validity of the tender by manager’s check and sufficiency of amount tendered

Addressing the contested element of tender, the Court accepted that payment by manager’s check is not, in general, legal tender but that the creditor has the option to accept or refuse it. The Court cited that payment by check can be valid if no prompt objection is made. The Court found that respondent’s stated reason for non-acceptance was the alleged insufficiency of the amount tendered, not the form of payment. The Court concluded that petitioner’s tender by manager’s check in the amount of P672,900.00 (P600,000 plus 18% per annum interest to August 3, 1994) constituted a valid tender, and that this amount was sufficient under the parties’ agreement because the parties had only agreed to 18% per annum interest on the P600,000.00 in the default clause. Accordingly, the consignation of that amount with the court was valid and extinguished petitioner’s obligation under the default clause.

Right to withdraw consigned funds and judicial acceptance

The Court examined Article 1260 of the Civil Code, which allows withdrawal before judicial confirmation of consignation or before the creditor’s acceptance. The Court held that petitioner could no longer withdraw the consigned amount because respondent, in his answer, prayed that the consigned amount be awarded to him—an act equivalent to acceptance of the consignation and thus extinguishing the debtor’s obligation. The Court also noted petitioner’s failure to demonstrate that he intended to perform the contract by delivering the required documents and the lot in exchange for the consigned

Case Syllabus (G.R. No. 156846)

Case Citation and Procedural Posture

Supreme Court, First Division, G.R. No. 156846, Decision dated February 23, 2004, penned by Justice Ynares‑Santiago.
Appeal from the Court of Appeals Amended Decision dated January 16, 2003 in CA‑G.R. CV No. 55740 which set aside the Regional Trial Court, Makati, Branch 64, Decision of November 29, 1996 in Civil Case No. 94‑2363.
Petitioner filed a petition for review on certiorari assailing the Court of Appeals’ Amended Decision that declared valid his consignation of P672,900.00 and found his obligation under paragraph 5 of the parties’ Agreement and Undertaking extinguished.
The Supreme Court denied the petition and affirmed the Court of Appeals’ Amended Decision. No costs were awarded.

Parties and Nature of Action

Petitioner: Teddy G. Pabugais — seller under the Agreement and Undertaking; plaintiff in the trial court action for consignation; appellant in the Court of Appeals; petitioner before the Supreme Court.
Respondent: Dave P. Sahijwani — buyer under the Agreement and Undertaking; defendant/respondent in the trial court and appellate proceedings.
Case centers on the validity of a consignation deposited by petitioner with the trial court (P672,900.00) and whether petitioner could withdraw the consigned funds as a matter of right.

Material Facts — Agreement and Sale Terms

On December 3, 1993, petitioner and respondent executed an Agreement And Undertaking whereby petitioner agreed to sell to respondent a lot of 1,239 square meters located at Jacaranda Street, North Forbes Park, Makati, Metro Manila, for P15,487,500.00.
Respondent paid an option/reservation fee of P600,000.00; the balance of P14,887,500.00 was to be paid within 60 days from contract execution, simultaneous with delivery by petitioner of:
- the owner’s duplicate Transfer Certificate of Title in respondent’s name,
- the Deed of Absolute Sale,
- the Certificate of Non‑Tax Delinquency on real estate taxes, and
- Clearance on Payment of Association Dues.
The parties agreed to a default provision (paragraph 5 of the Agreement and Undertaking):
- If respondent failed to pay the balance, petitioner was entitled to forfeit the P600,000.00 option/reservation fee.
- If petitioner failed to deliver the required documents, petitioner must return the P600,000.00 with interest at 18% per annum.

Default and Initial Attempts at Return of Option Fee

Petitioner failed to deliver the necessary documents within the stipulated period and attempted to return the P600,000.00 option/reservation fee.
Petitioner initially returned the P600,000.00 by Far East Bank & Trust Company Check No. 25AO54252P, which was dishonored.
Petitioner claimed two subsequent tenders of payment by way of Far East Bank & Trust Company Manager’s Check No. 088498, dated August 3, 1994, in the amount of P672,900.00 (P600,000.00 plus 18% per annum from December 3, 1993 to August 3, 1994):
- Alleged first tender: August 3, 1994, through petitioner’s messenger to respondent’s counsel.
- Alleged second tender: August 8, 1994, via DHL Worldwide Services, with the manager’s check attached to a letter dated August 5, 1994.
On August 11, 1994, petitioner sent a letter stating he was consigning the amount tendered with the Regional Trial Court of Makati City.
On August 15, 1994, petitioner filed a complaint for consignation with the trial court.

Respondent’s Account and Objections to Tender

Respondent’s counsel admitted receipt of petitioner’s August 5, 1994 letter but contended no check was attached.
Respondent’s counsel asserted that no valid tender occurred because:
- No check was actually tendered to respondent;
- The computation of the amount tendered was insufficient to cover the obligation; and
- Petitioner had verbally promised additional penalties: 3% monthly interest and 25% attorney’s fees as penalty for default, allegedly in addition to the agreed 18% per annum on the P600,000.00 option/reservation fee.

Trial Court Decision (November 29, 1996)

The trial court declared the consignation invalid for failure of petitioner to prove that:
- He tendered payment to respondent, and
- Respondent refused to receive such tender.
The trial court found that, even if respondent had refused tender, refusal was justified because the manager’s check allegedly offered was not legal tender; hence there was no valid tender.
The trial court ordered petitioner to pay respondent P600,000.00 with interest of 18% per annum from December 3, 1993 until fully paid, plus moral damages and attorney’s fees.

Appellate Proceedings and Representation Changes

Petitioner appealed to the Court of Appeals.
Petitioner’s counsel, Atty. Wilhelmina V. Joven, died; she was substituted by Atty. Salvador P. De Guzman, Jr. (entry of appearance noted by the Court of Appeals).
On December 20, 2001, petitioner executed a Deed of Assignment assigning part of the P672,900.00 consigned with the trial court to Atty. De Guzman, Jr. as partial payment of attorney’s fees; the Deed provided that at least 40% of said amount be paid to the estate of the late Atty. Wilhelmina Joven.
On January 7, 2002, petitioner filed an Ex Parte Motion to Withdraw Consigned Money.
Atty. De Guzman, Jr. filed a Motion to Intervene to claim the consigned amount by virtue of the