Banco Filipino Savings V Diaz

Banco Filipino Savings and Mortgage Bank v.
Antonio and Elise Diaz

Facts:
On March 8, 1979, spouses Diaz secured a loan from Banco Filipino Savings and
Mortgage Bank in the amount of P400,000.00 bearing an interest rate of 16% per
annum. In November 1982, the said loan was restructured or consolidated in the
increased amount of P3,163,000.00 payable within a period of 20 years at an
interest rate of 21% per annum. The obligation was to be paid in equal monthly
amortization of P56,227.00, and secured by a real estate mortgage over two
commercial lots situated at Bolton and Bonifacio Streets in Davao City. As additional
collateral, the respondents assigned the rentals on the mortgaged properties in
favor of petitioner bank.
Despite repeated demands made on them, the respondents defaulted in the payment
of their obligation beginning October 1986.
The Diaz spouses tried to settle their account by tendering the sum of P1,034,600.00
as full payment but bank refuses to accept it.
The spouses then deposited by way of consignation with the RTC of Makati City, a
managers check dated December 5, 1991, in the amount of P1,034,600.00 as full
payment of their loan obligation. Petitioner bank was duly informed of such
consignation.
the CA relied on Article 1260 of the Civil Code which provides, in part, that [b]efore
the creditor has accepted the consignation, or before a judicial declaration that the
consignation has been properly made, the debtor may withdraw the thing or sum
deposited, allowing the obligation to remain in force.
As a result, interest rate became more than 60% per annum, CA said it is excessive,
iniquitous, unconscionable and exorbitant
Issue:
What is consignation? Can the consignation of Diaz be withdrawn?
Ruling:
Consignation is the act of depositing the thing due with the court or judicial
authorities whenever the creditor cannot accept or refuses to accept payment and it
generally requires a prior tender of payment.
YES the Diaz spouses have a right to withdraw the consignation made. The bank has
not accepted the deposit. (CA finding).
About right of spouses to withdraw amount deposited/consignated:
Art. 1260. Once the consignation has been duly made, the debtor may ask the judge to order the
cancellation of the obligation.
Before the creditor has accepted the consignation, or before a judicial confirmation that the consignation
has been properly made, the debtor may withdraw the thing or the sum deposited, allowing the obligation to
remain in force.
The Court ruled:

Before the consignation has been accepted by the creditor or judicially declared as
properly made, the debtor is still the owner of the thing or amount deposited, and,
therefore, the other parties liable for the obligation have no right to oppose his withdrawal
of such thing or amount. The debtor merely uses his right, and unless the law expressly
limits that use of his right, it cannot be prevented by the objections of anyone. Our law
grants to the debtor the right to withdraw, without any limitation, and we should not read a
non-existing limitation into the law. Although the other parties liable for the obligation
would have been benefited if the consignation had been allowed to become effective, before
that moment they have not acquired such an interest as would give them a right to oppose
the exercise of the right of the debtor to withdraw the consignation.
Before the consignation has been judicially declared proper, the creditor may
prevent the withdrawal by the debtor, by accepting the consignation, even with
reservations. Thus, when the amount consigned does not cover the entire obligation, the
creditor may accept it, reserving his right to the balance
The Gaisano brothers, as attorneys-in-fact of the spouses, paid in January 2009,
P25,100,000.00 as settlement of the obligation. To the Courts mind, the payment of the
said sum already constituted substantial compliance by the spouses of their obligation
considering that their loan, as restructured or consolidated in November 1982, amounted
to only P3,163,000.00.
In addition, Article 1229 of the Civil Code specifically empowers the judge to reduce
the civil penalty equitably, when the principal obligation has been partly or irregularly
complied with. Upon this premise, the Court holds that the said surcharges should be
equitably reduced such that the payment of P25,100,000.00 constituted substantial
compliance by the respondents of their obligation to petitioner bank.

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Banco Filipino Savings V Diaz

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Banco Filipino Savings and Mortgage Bank v.

Antonio and Elise Diaz

The Court ruled:

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