Pabugais vs. Sahijwani

A tender of payment made via manager's check is valid where the creditor's refusal is based on the insufficiency of the amount rather than the form of the check, and a debtor may no longer withdraw consigned funds once the creditor has accepted the consignation, such as through a prayer in the answer for the award of the consigned amount, and an assignment of litigious property to a lawyer as payment for attorney's fees during the pendency of the case is void under Article 1491 of the Civil Code.

Petitioner Teddy G. Pabugais and respondent Dave P. Sahijwani entered into an "Agreement And Undertaking" dated December 3, 1993, for the sale of a lot in North Forbes Park, Makati, for P15,487,500.00. Respondent paid P600,000.00 as an option/reservation fee. The agreement stipulated that if petitioner failed to deliver the necessary documents, he must return the P600,000.00 with 18% interest per annum. Petitioner failed to deliver the documents and the check he issued for the return of the option fee was dishonored. Petitioner subsequently claimed to have tendered a manager's check for P672,900.00 (principal plus interest), which respondent refused, prompting petitioner to file a complaint for consignation.

• The Agreement: On December 3, 1993, petitioner agreed to sell a 1,239-square-meter lot to respondent for P15,487,500.00. Respondent paid P600,000.00 as an option/reservation fee. Under paragraph 5 of their agreement, petitioner's failure to deliver the necessary documents obligated him to return the P600,000.00 with 18% annual interest.
• Petitioner's Default: Petitioner failed to deliver the required documents. He issued a Far East Bank & Trust Company check for P600,000.00 to respondent, which was dishonored.
• Tender of Payment: Petitioner claimed he tendered P672,900.00 (P600,000.00 plus 18% interest from December 3, 1993, to August 3, 1994) via Far East Bank manager's check on August 3 and August 8, 1994. Respondent's counsel admitted receiving a letter about the payment but denied that the check was attached, and further claimed the amount was insufficient based on alleged verbal promises of 3% monthly interest and 25% attorney's fees.
• Consignation: On August 11, 1994, petitioner notified respondent of his intent to consign the amount. On August 15, 1994, petitioner filed a complaint for consignation with the RTC of Makati City.
• Assignment to Counsel: During the pendency of the appeal before the Court of Appeals, petitioner's original counsel died and was substituted by Atty. Salvador P. De Guzman, Jr. On December 20, 2001, petitioner executed a Deed of Assignment assigning the consigned P672,900.00 to Atty. De Guzman as partial payment for attorney's fees. Petitioner moved to withdraw the consigned money, and Atty. De Guzman moved to intervene and pray for its release to him.

• Right to Withdraw Consigned Amount: Petitioner maintained that he could withdraw the amount deposited with the trial court as a matter of right because, at the time he moved for withdrawal, the Court of Appeals had not yet ruled on the consignation's validity and respondent had not yet accepted the consigned amount.

• Invalidity of Tender of Payment: Respondent countered that there was no valid tender of payment because no check was actually attached to the letter sent to his counsel.
• Insufficiency of Amount: Respondent argued that the amount tendered was insufficient because petitioner had verbally promised to pay 3% monthly interest and 25% attorney's fees as a penalty for default, in addition to the 18% annual interest stipulated in the agreement.

• Validity of Consignation: Whether there was a valid consignation.
• Withdrawal of Consigned Amount: Whether petitioner can withdraw the amount consigned as a matter of right.

• Validity of Consignation: The consignation was declared valid. A valid tender of payment existed. Although a manager's check is not legal tender, respondent's refusal was based on the insufficiency of the amount rather than the form of the check; thus, the tender via manager's check was valid. The amount of P672,900.00 was sufficient to satisfy the obligation because the written agreement only stipulated 18% per annum interest, and the alleged verbal promises of additional interest and attorney's fees were not part of the written contract.
• Withdrawal of Consigned Amount: The withdrawal of the consigned amount was disallowed. Petitioner's reliance on Article 1260 of the Civil Code, which allows withdrawal before acceptance or judicial confirmation, was misplaced. Respondent's prayer in his answer that the consigned amount be awarded to him constituted acceptance of the consignation, thereby extinguishing petitioner's obligation and barring withdrawal. Furthermore, the withdrawal was sought to pay attorney's fees via a Deed of Assignment executed in favor of petitioner's counsel during the pendency of the case. This assignment is void under Article 1491 of the Civil Code, which prohibits lawyers from acquiring by assignment property or rights that are the object of litigation in which they are participating. Granting the withdrawal would unjustly enrich petitioner and sanction a void contract.

• Requisites of Consignation — For consignation to be effective, the debtor must establish: (1) a debt due; (2) consignation made because the creditor refused to accept payment, was absent, incapacitated, or there were conflicting claims; (3) previous notice of consignation given to the interested party; (4) the amount due placed at the disposal of the court; and (5) notification to the interested party after consignation. Failure in any requirement renders the consignation ineffective. The Court applied this to find that the prior valid tender of payment, a key prerequisite, was satisfied.
• Tender of Payment via Check — While a check is not legal tender, payment by check may be valid if no prompt objection to the form is made, or if the creditor's refusal is based on other grounds, such as the alleged insufficiency of the amount. The Court applied this to uphold the tender of the manager's check.
• Prohibition Against Lawyers Acquiring Litigious Property — Under Article 1491(5) of the Civil Code, lawyers cannot acquire by purchase or assignment property and rights that are the object of any litigation in which they take part by virtue of their profession. The Court applied this to nullify the Deed of Assignment transferring the consigned funds to petitioner's counsel as attorney's fees during the appeal's pendency.

• "While it is true that in general, a manager’s check is not legal tender, the creditor has the option of refusing or accepting it. Payment in check by the debtor may be acceptable as valid, if no prompt objection to said payment is made."
• "The withdrawal of the amount deposited in order to pay attorney’s fees to petitioner’s counsel, Atty. De Guzman, Jr., violates Article 1491 of the Civil Code which forbids lawyers from acquiring by assignment, property and rights which are the object of any litigation in which they may take part by virtue of their profession."

• Legaspi v. Court of Appeals, 226 Phil. 24 (1986) — Cited for the definition of consignation as the act of depositing the thing due with the court whenever the creditor cannot accept or refuses to accept payment.
• Soco v. Militante, 208 Phil. 151 (1983) — Cited for the five requisites of a valid consignation and the rule that payment by check is valid if no prompt objection is made.
• Far East Bank & Trust Company v. Diaz Realty, Inc., 363 SCRA 659 (2001) — Cited for the principle that a manager's check is not legal tender, but the creditor has the option to accept or refuse it.
• Ordinio v. Palongan Eduarte, 207 SCRA 229 (1992) — Cited to support the application of Article 1491 prohibiting lawyers from acquiring litigious property by assignment.

• Article 1256-1258, Civil Code — Govern the requisites and procedure for consignation. Applied to determine the validity of the consignation based on the existence of a valid prior tender of payment.
• Article 1260, Civil Code — Allows the debtor to withdraw the thing or sum deposited before the creditor has accepted the consignation or before judicial confirmation. The Court distinguished this provision, ruling that the creditor's prayer in the answer constituted acceptance, barring withdrawal.
• Article 1491(5), Civil Code — Prohibits lawyers from acquiring by purchase or assignment property and rights which are the object of any litigation in which they take part. Applied to declare void the assignment of the consigned money to petitioner's counsel as attorney's fees during the pendency of the appeal.
• Rule 10, Canons of Professional Ethics — Provides that a lawyer should not purchase any interest in the subject matter of the litigation he is conducting. Applied in conjunction with Article 1491 to void the assignment.

Davide, Jr., C.J. (Chairman), Panganiban, and Azcuna, JJ.