G.R. No. 138588 ; August 23, 2001
FAR EAST BANK & TRUST COMPANY, petitioner, vs. DIAZ REALTY INC., respondent.

FACTS

Sometime in August 1973, Diaz and Company obtained a loan from Pacific Banking Corporation (PaBC) secured by a real estate mortgage over properties owned by Diaz Realty Inc. In 1981, Allied Banking Corporation rented space in the building on the mortgaged properties, and the parties agreed that monthly rentals would be paid directly to PaBC to apply to the mortgage debt. In July 1985, the Central Bank closed PaBC and placed it under receivership. In December 1986, Far East Bank & Trust Company (FEBTC) purchased Diaz & Company’s credit from PaBC, but Diaz was not informed until March 23, 1988. On that date, Antonio Diaz (President of Diaz & Company and Vice-President of Diaz Realty) was told by FEBTC that his loan balance was P1,447,142.03. He asked for an accounting of the rental payments made by Allied Bank. On December 14, 1988, Diaz tendered an Interbank check for P1,450,000.00 to FEBTC to prevent additional interest and charges. FEBTC did not accept it as payment and instead asked Diaz to deposit the amount with its Davao City branch, pending approval of the Central Bank Liquidator. Diaz later converted the deposit into a money market placement at FEBTC’s suggestion. When FEBTC still did not accept the tender, Diaz filed a case in the Regional Trial Court of Davao City. The trial court rendered a judgment, later modified, ordering the parties to jointly compute the interest due on the loan at 12% per annum from April 18, 1985, until November 14, 1988, and to compare the total with the P1,450,000.00 deposit/money market placement, with the defendant to cancel the mortgage and pay attorney’s fees. The Court of Appeals modified the decision, ordering plaintiffs to pay FEBTC the principal sum of P1,067,000.00 plus 12% interest per annum from July 9, 1988, until fully paid; the parties to negotiate a new lease; and the defendant to pay attorney’s fees.

ISSUE

The primary issue revolves around the validity of the tender of payment made by Diaz Realty Inc. through a check for P1,450,000.00 and the applicable interest rate on the loan obligation.

RULING

The Supreme Court upheld the Court of Appeals’ decision with modification. It ruled that 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 and a creditor may validly refuse it, a creditor who in fact accepts a fully funded check after the debtor’s manifestation that it was given to settle an obligation is estopped from later denouncing the efficacy of such tender. The Court found that Diaz Realty made a valid tender of payment, which FEBTC did not validly refuse; instead, it asked for the amount to be deposited, thereby accepting the fund. The Court also ruled that the applicable interest rate should be 12% per annum, the legal rate, from July 9, 1988, until full payment, as the transfer of the credit to FEBTC was without the knowledge and consent of the debtor-obligor, and the stipulated 20% interest could not be imposed. The award of attorney’s fees was sustained due to FEBTC’s negligence in not immediately informing Diaz of the credit purchase and failing to negotiate to avoid litigation. The Court ordered the cancellation of the real estate mortgage upon full payment of the adjudged amount.