THIRD DIVISION

FAR EAST BANK & TRUST COMPANY, petitioner

Vs
DIAZ REALITY, INC., respondent
G.R. No. 138588, August 23, 2001
PANGANIBAN, J.

FACTS:
In August 1973, Diaz and Company received a loan of P720,000 from PaBC. The loan had varying
interest rates, starting at 12% and increasing to 20%. It was secured by a mortgage on two parcels of
land owned by Diaz Realty in Davao City. In 1981, Allied Banking Corp rented an office in a building
on mortgaged properties and used the rental payments to pay off the mortgage debt instead of paying
the plaintiffs as agreed. On July 5, 1985, the Central Bank closed PaBC and appointed Renan Santos
as liquidator. In December 1986, FEBTC bought Diaz & Company's credit for PaBC. Diaz was
informed about this on March 23, 1988.

The plaintiff, Antonio Diaz, alleges that on the same day, he visited the office of PaBC, which housed
FEBTC. Cashier Ramon Lim informed him that FEBTC acquired PaBC and that the plaintiff's loan was
P1,447,142. On December 14, 1988, the plaintiff requested an accounting of monthly rental payments
made by Allied Bank. Diaz offered P1.45M to FEBTC via Interbank check to avoid extra charges on
the loan. FEBTC declined payment and told Diaz to deposit the amount at their Davao City Branch
until Central Bank Liquidator Renan Santos approves. Diaz asked for an interest rate reduction from
20% to 12% per annum but got no response. Later, the defendant asked Diaz to change the
P1,450,000. A $100 deposit expired on April 14, 1989. There was no response from the defendant, so
the case was filed in RTC Davao City.

The defendant claims FEBTC bought the plaintiffs' account for P1,828,875 from PaBC. In December
1986, the PaBC Davao Branch collected interest and penalty charges on the loan. FEBTC did not
collect the interest rates mentioned in the complaint; PaBC did. FEBTC tried negotiating with the
plaintiffs and settling the charges after acquiring the account. FEBTC was unaware of the interest
rates imposed by PaBC before the purchase. The defendant took appropriate action to settle the
account and exercised prudence. The other 'affirmative defenses' are denials.

After trial, the court rendered judgment on August 6, 1993. The judgment states that:
1. The plaintiff and defendant should calculate the interest due on the P1,057,000 jointly—a $
10,000 loan from April 18, 1985, to November 14, 1988, at 12% annually.
2. The parties will add the joint computation result to the principal.
3. The total amount is P1,057,000. The principal and interests will be compared with the deposit
of P1,450,000. If 00 is insufficient, the plaintiff must pay the difference between the
P1,450,000.00 deposit and the jointly computed amount; conversely, if the P1,450,000.00
deposit is more than enough. If the computation reveals an amount greater than the parties
agreed upon, the defendant must return the surplus to the plaintiffs.
4. The defendant must cancel the mortgage.
5. Paragraph eight of the Lease Contract is hereby canceled, and the plaintiffs will now receive
the rental payment.
6. The defendant must pay the plaintiffs:
a. 15k pesos as attorney's fees.
b. P300,000.00 as exemplary damages.
c. The suit's cost.

Upon reconsideration, the court modified its decision on Oct. 12, 1993,
1. The plaintiff and defendant shall jointly compute the interest due on the P1,167,000.00 loan
from April 18, 1985 until November 14, 1988 at 12% per annum.
2. The parties will add the joint computation's result to the principal of P1,067,000.00.
3. The outcome of adding P1,067,000. The principal and interests will be compared with the
P1,450,000.00 money market placement provided by the plaintiff with the defendant bank, if it
still exists or has not yet matured.
4. The defendant will cancel the mortgage.
 5. 5. Paragraph 8 of the lease contract between Allied Bank and the plaintiff, where Pacific
Banking (the defendant's predecessor) confirmed their agreement (Exh.) 'H') is canceled and
deleted. Rental should now be paid to the plaintiff.'
6. The defendant must pay the plaintiff
a. 15,000 pesos for attorney's fees
b. and cost of suit.

The CA Ruling
The CA agreed with the trial court's finding that Diaz Realty Inc. made a valid payment of P1,450,000
to the Far East and Trust Company. The appellate court found that the petitioner did not effectively
dispute the respondent's evidence that the check was tendered to pay the debt and instead treated it
as a deposit. The court also ruled that interest should be calculated at 12% per year, starting from July
9, 1988, until the entire debt is fully paid. The text stated that the petitioner bought the respondent's
account from PaciBank. Although the purchase was valid, the 20% interest stated in the Promissory
Note should not be enforced because the transfer was done without the knowledge and consent of
the respondent. The appeals court agreed with the petitioner that the real estate mortgage should not
have been canceled, as the primary obligation was paid off. The CA also stated that the lease contract
could be renegotiated. The lower court also supported the award of attorney's fees based on the
petitioner's negligence in promptly informing the respondent of the purchase and transfer of credit and
failing to negotiate to avoid legal action. "Please shorten this text:"

ISSUES:
Whether or not the efficacy of the alleged tender of payment made by the respondent.
Whether or not the effect of the transfer to the petitioner of the respondent's account with PaBC.
Whether or not the interest rate is applicable.
Whether or not the status of the Real Estate Mortgage.

RULING:

First Issue: Tender of Payment

The petitioner disputes CA's decision to validate the respondent's payment, arguing that the check is not legal
tender. The records show the bank purchased the respondent's account from PaBC in December. 1986, later
notified on March 23, 1988. Antonio Diaz, the company president, asked about their obligation. He was told it
was P1,447,142. On Nov 14, 1988, the petitioner received Check No. from Interbank. On Nov. 13, 1988,
P1,450,000 check 81399841 was issued to Far East Bank from Pacific Bank. Interbank cleared and honored the
check on Jan. 20, 1992, as confirmed by their Certification. A check may not always be legal tender, but a
creditor can refuse or accept it.

In this case, the bank accepted the check. Instead, the bank honored and fully funded the check, allowing the
petitioner to hold the money for months. A Tender of Payment offers what is owed to the creditor and a request
for acceptance. Intent, ability, and capability must fulfill the offer, covering the due amount. The respondent's
intent to settle the obligation is evident from the loan balance of P1,447,142. On 03, the petitioner received a
P1,450,000 check as full payment for its Pacific Bank account. Petitioner accepted the check, claiming it was a
deposit. The bank honored the check, but the respondent filed a case to make them acknowledge, accept
payment, and cancel the mortgage after the petitioner refused to release it. The acts show the respondent's intent
and ability to fully settle its debt to the petitioner. Withdrawing money from the petitioner's bank does not affect
the November 14, 1988 payment.

The petitioner's payment was accepted but argues that consignation is necessary to extinguish the obligation,
which the respondent did not do. However, consignation only applies when the creditor wrongfully rejects
payment. The respondent settled their obligation with a tender, and the petitioner could accept or reject it as
payment. The recipient accepted the check as a deposit, as not doing so would be unfair to the obligor.

Second Issue: Nature of the Transfer of Respondent's Account

The petitioner objects to the CA's labeling of the transfer of the respondent's account as an
"ineffective novation." Petitioner argues it was solely a credit assignment. The transfer of the
respondent's credit to the petitioner was an assignment of credit. It did not change the original
agreement between PaBC and the respondent or affect the rights and obligations of the parties. No
novation occurred through regular subrogation. An assignment of credit is when the owner (assignor)
transfers the credit and its associated rights to another (assignee) without the debtor's consent. The
assignee gains the ability to enforce the credit as the assignor would have. The petitioner bought the
respondent's loan from PaBC, acquiring all of their rights against the respondent. The petitioner had
the right to collect the total credit value from the respondent, as agreed in the Promissory Note.

Third Issue: Applicable Interest Rate

Petitioner,as the assignee of the respondent's credit, the bank is entitled to a 20% interest rate for the
debt. As stated in the Promissory Note from August 26, 1983, the private respondent owes the bank.
However, because the respondent made a valid payment on November 14, 1988, the interest no
longer applies after that date. The respondent must pay the petitioner-bank the principal amount of
P1,067,000, plus 20% interest until November 14, 1988, minus payments made to PaBC from
December 1986 to July 8, 1988. After that, the interest will be calculated at 12% until the entire
payment is made.

Fourth Issue: Status of Mortgage Contract

The Real Estate Mortgage and Lease Contract between the respondent and PaBC should remain
effective until the debt is fully settled. After that, the parties can discuss renewing or ending their
contracts.

WHEREFORE, the Petition is hereby DENIED. The assailed Decision of the Court of Appeals is
AFFIRMED with the following modifications: Respondent Diaz Realty Inc. is ORDERED to pay Far
East Bank and Trust Co. its principal loan obligation in the amount of P1,067,000, with interest
thereon computed at 20 percent per annum until November 14, 1988, less any interest payments
made to PaBC, petitioner's assignor. Thereafter, interest shall be computed at 12 percent per annum
until fully paid.

SO ORDERED.