When a Bank's Deposit of Rent Is Not Valid Consignation: PNB v. Chan

The case of Philippine National Bank v. Chan (G.R. No. 206037, March 13, 2017) clarifies a common misconception: depositing money in a bank account is not the same as consigning it in court. The Supreme Court ruled that a debtor who simply sets aside funds in a savings account—instead of going through judicial consignation—remains in default and must pay legal interest. The decision also reminds courts that a mortgagee's right to a deficiency claim must be proven with clear evidence, not assumed from a bid price.

The Dispute Over Rent and a Loan

Lilibeth S. Chan leased a commercial building in Manila to Philippine National Bank (PNB). When the lease expired, PNB stayed on a month-to-month basis at a higher rental rate. Around the same period, Chan obtained a loan from PNB secured by a real estate mortgage over the same property, and she executed a Deed of Assignment over the rental payments in favor of the bank.

A third party, Lamberto Chua, later claimed to be the new owner of the property and demanded that rentals be paid to him. Instead of paying Chan or Chua, PNB deposited the monthly rentals into a non-drawing savings account. Chan eventually filed an unlawful detainer case. During the proceedings, PNB consigned the disputed amount with the court—but only after the rentals had already fallen due.

Consignation Must Be Judicial

The central issue was whether PNB's deposit of rentals in a savings account amounted to valid consignation. The Supreme Court said no.

Under Article 1256 of the Civil Code, consignation is the act of depositing the thing due with the court or judicial authorities when the creditor cannot or refuses to accept payment. For consignation to be valid, the debtor must comply with several requirements, including prior notice to the persons interested and placing the amount at the disposal of the court.

The Court emphasized that consignation is necessarily judicial—it is not allowed in venues other than the courts. PNB's act of opening a separate savings account did not place the rentals at the disposal of the court. Therefore, it did not have the effect of payment, and PNB's obligation to pay rent remained subsisting.

Delay and Legal Interest

Because PNB's rental payments had already fallen due and demandable before it consigned the amount with the court, the bank was in default. The Court noted that while consignation has a retroactive effect, payment is deemed made only at the time of the deposit in court.

Under Article 2209 of the Civil Code, a debtor who incurs delay in paying a sum of money is liable for interest. In the absence of a stipulated rate, the legal interest is 6% per annum. Since there was no stipulated interest in the lease, PNB was ordered to pay 6% legal interest on the unpaid rentals from January 16, 2005 up to May 30, 2006.

The Deficiency Claim

PNB also claimed it was entitled to the rental proceeds to cover an alleged deficiency after foreclosing on Chan's mortgaged property. The Court found that PNB's evidence—a statement of account—was insufficient to prove the deficiency. The document was unsupported by corroborating evidence and was even illegible in the records.

The Court also corrected the trial court's error in assuming that the bid price of P15,311,000.00 covered Chan's indebtedness. The amount stated in the Notice of Extra-Judicial Sale was computed as of May 15, 2006, but the foreclosure sale happened on October 31, 2006. The liability would have increased in the interim. The case was remanded for proper reception of evidence to determine whether a deficiency actually existed.

Practical Takeaways

• Depositing money in a bank account is not consignation. To validly consign payment, the amount must be placed at the disposal of the court, with prior notice to all interested parties.
• Delay triggers interest. If an obligation to pay money falls due and the debtor does not pay or validly consign, the debtor incurs delay and becomes liable for legal interest at 6% per annum under Article 2209 of the Civil Code.
• Consignation has a retroactive effect, but only from the time of the judicial deposit. Payment is not deemed made earlier merely because the debtor set aside funds.
• A mortgagee's deficiency claim must be proven. The right to recover a deficiency exists, but the amount must be established with clear and corroborated evidence, not assumed from the bid price.
• Courts must compute the actual deficiency. The indebtedness must be determined as of the date of the foreclosure sale, not an earlier date.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.