G.R. No. 206037 - Philippine National Bank vs. Chan

Case Summary (G.R. No. 206037)

Factual Background

Respondent owned a three-story commercial building covered by TCT No. 208782 and leased it to PNB on May 10, 2000 for five years with monthly rent initially P76,160.00 and thereafter P116,788.44 on a month-to-month basis; PNB vacated the premises on March 23, 2006. Respondent obtained a loan from PNB on January 22, 2002, initially P1,500,000.00 and later increased to P7,500,000.00, secured by a real estate mortgage which was substituted by a mortgage over another Paco property on March 31, 2004. Respondent executed a deed of assignment over rental proceeds in favor of PNB.

Dispute over Rentals and Consignation

Respondent sued for unlawful detainer on August 26, 2005 alleging unpaid rentals from October 2004 to August 2005. PNB defended by asserting that rentals from October 2004 to January 15, 2005 were applied to respondent’s loan pursuant to the deed of assignment and that, from January 16, 2005 to February 2006, it deposited rentals in a separate non-drawing savings account after a third party, Lamberto Chua, claimed ownership and instructed payments to him. PNB consigned P1,348,643.92 representing rentals from January 16, 2005 to February 2006 with the MeTC on May 31, 2006.

MeTC Ruling

The Metropolitan Trial Court rendered its August 9, 2006 Decision ordering PNB to pay respondent accrued rentals of P1,348,643.92 with interest at six percent per annum from January 16, 2005 to March 23, 2006, and awarded attorney’s fees of P20,000.00 and costs of suit. The MeTC thus treated the rentals as unpaid for the period stated and held PNB liable for interest and fees.

RTC Proceedings and Execution

PNB appealed to the RTC but proceeded to foreclose the substituted mortgaged property, which it purchased at public auction on October 31, 2006 for P15,311,000.00; the certificate of sale reflected an indebtedness figure P11,211,283.53 as of May 15, 2006. The RTC, in its December 7, 2006 Decision, affirmed the MeTC, found that respondent’s loan had been paid by the foreclosure sale, held PNB delayed in vacating and paying rentals, awarded legal interest and attorney’s fees, and granted respondent execution. The sheriff turned over P1,348,643.92 to respondent on December 20, 2006. The RTC denied PNB’s motion for reconsideration and to quash the writ of execution on February 6, 2007.

Court of Appeals Ruling

The Court of Appeals reviewed PNB’s Rule 42 petition and concluded that PNB’s entitlement to the rental proceeds depended on whether a deficiency existed after the foreclosure sale. The CA found no sufficient evidence that respondent’s liability as of October 31, 2006 was the amount PNB asserted (P18,016,300.71). The CA remanded the case to the MeTC for reception of evidence and computation of any deficiency using specified guidelines and held that deposit of rentals in a bank savings account did not constitute legal consignation; the CA therefore found PNB liable for legal interest under Article 2209. The CA deleted the award of attorney’s fees.

Issues Presented to the Supreme Court

The petition to the Supreme Court raised whether PNB properly consigned the disputed rental payments with the MeTC; whether PNB incurred delay in payment making it liable for legal interest; and whether PNB was entitled to the rentals to cover an alleged deficiency after the foreclosure sale.

Supreme Court Disposition

The Court denied the Petition for Review on Certiorari and affirmed the CA Decision dated May 28, 2012 and the CA Resolution dated February 21, 2013. The Court found no reversible error in the CA’s holdings and remand order.

Legal Basis and Reasoning on Consignation and Interest

The Court explained that consignation is judicial in character and that valid consignation requires placing the thing due at the disposal of the court, or compliance with the legal exceptions in Article 1256. The Court found that PNB’s deposit of rentals in a non-drawing savings account did not constitute consignation because it did not place the sums at the disposal of a judicial authority. The Court further observed that the rentals were due and demandable before PNB’s May 31, 2006 deposit with the MeTC and that consignation produces retroactive effect only at the time of judicial deposit; accordingly, PNB defaulted in payment for the period January 16, 2005 to March 23, 2006 and became liable for legal interest at six percent per annum under Article 2209 from January 16, 2005 up to May 30, 2006.

Legal Basis and Reasoning on Foreclosure Deficiency

The Court agreed with the CA that PNB failed to prove that a deficiency existed after the foreclosure sale. The Court found the Statement of Account submitted by PNB insufficient and partly illeg

Case Syllabus (G.R. No. 206037)

Parties and Procedural Posture

PHILIPPINE NATIONAL BANK, PETITIONER, VS. LILIBETH S. CHAN, RESPONDENT.
The petitioner filed a Petition for Review on Certiorari under Rule 45, Rules of Court, assailing the Court of Appeals Decision dated May 28, 2012 and Resolution dated February 21, 2013 in CA-G.R. SP No. 98112.
The assailed CA rulings reviewed an appeal from the Regional Trial Court, Branch 14, Manila, which in turn reviewed a Decision of the Metropolitan Trial Court, Branch 7, Manila.
The Supreme Court denied the petition and affirmed the CA Decision and Resolution in all material respects.

Key Factual Allegations

Respondent Lilibeth S. Chan owned a three-story commercial building covered by TCT No. 208782 located in Paco, Manila.
PNB leased the building from respondent by a May 10, 2000 lease for five years from December 15, 1999 to December 14, 2004 at a monthly rent of P76,160.00.
After expiration of the lease, PNB continued occupancy on a month-to-month basis at a monthly rental of P116,788.44 and vacated the premises on March 23, 2006.
Respondent obtained a P1,500,000.00 loan from PNB on January 22, 2002 secured by a Real Estate Mortgage over the leased property and executed a Deed of Assignment of rental payments in favor of PNB.
The loan was increased to P7,500,000.00 and the mortgage over the leased property was released on March 31, 2004 in substitution for a mortgage over another parcel covered by TCT No. 209631.
Respondent filed an unlawful detainer action on August 26, 2005 alleging nonpayment of rentals from October 2004 to August 2005.
PNB claimed it applied rentals from October 2004 to January 15, 2005 to respondent's loan, received a demand from a third party, Lamberto Chua, and thereafter deposited rentals in a non-drawing savings account pending resolution.
The parties agreed at the MeTC hearing on April 25, 2006 to apply rentals from October 2004 to January 15, 2005 to the loan, and PNB consigned the amount of P1,348,643.92 to the MeTC on May 31, 2006 representing rentals from January 16, 2005 to February 2006.

Procedural History

The MeTC rendered a Decision dated August 9, 2006 ordering PNB to pay respondent accrued rentals of P1,348,643.92 with legal interest at six percent per annum from January 16, 2005 up to March 23, 2006, plus attorney's fees of P20,000.00 and costs.
PNB appealed to the RTC, asserting the rentals had been applied to the loan and denying liability for interest.
While the appeal was pending, PNB initiated foreclosure on the property covered by TCT No. 209631 and purchased the property at the extrajudicial sale on October 31, 2006 for P15,311,000.00 as highest bidder.
The Certificate of Sale stated indebtedness of P11,211,283.53 as of May 15, 2006 exclusive of penalties and fees, and PNB later asserted an outstanding obligation of P18,016,300.71 yielding a claimed deficiency of P2,705,300.71.
The RTC affirmed the MeTC Decision in a December 7, 2006 judgment, found the loan had been paid by the foreclosure sale, awarded interest and attorney's fees to respondent, and the writ of execution led to payment of P1,348,643.92 to respondent on December 20, 2006.
The RTC denied PNB's motion for reconsideration by Order dated February 6, 2007, and PNB brought a Petition for Review under Rule 42, Rules of Court before the Court of Appeals.
The CA remanded the case to the MeTC for reception of evidence and computation of any deficiency and deleted the award of attorney's fees, and the CA denied PNB's motion for reconsideration in its February 21, 2013 Resolution.

Issues Presented

Whether PNB properly effected a consignation of the disputed rental payments in the amount of P1,348,643.92 with the MeTC Clerk of Cour