FIRST DIVISION

[G.R. No. 123855. November 20, 2000.]

NEREO J. PACULDO, petitioner , vs. COURT OF APPEALS and

BONIFACIO C. REGALADO, respondents.

Diosdado P. Peralta for petitioner.

Atienza Madrid Buenaventura & Rodriguez for private respondent.

SYNOPSIS

After judgment was rendered ordering the petitioner to vacate the leased wet market
building and to pay back rentals, he paid the amount of P11,478,121.85 for security deposit
and rentals but the respondent, without petitioner's consent, applied portions of the payment
to his other obligations with the respondent. The petitioner filed a petition for review with
the CA but the CA dismissed the petition finding that petitioner impliedly consented to
respondent's application of payment to heavy equipment brought by petitioner from
respondent.

Petitioner submits that his silence is not consent but is in fact a rejection.

Ruling in petitioner's favor, the Supreme Court held: that at the time petitioner made
the payments, he made it clear to respondent that they were to be applied to his rental
obligation on the wet market property; that there was no clear assent by petitioner to the
change in the manner of application of payment; and that even if petitioner did not declare
to which of his debts the payment is to be applied, the application made by respondent to
pay the purchase price of equipment that was not yet due and demandable is contrary to
the provisions of the law.

SYLLABUS

1. CIVIL LAW; CIVIL CODE; OBLIGATION AND CONTRACTS; APPLICATION

OF PAYMENT; RIGHT TO DECLARE WHICH DEBT IS TO BE SATISFIED FIRST RESTS
WITH THE DEBTOR; CASE AT BAR. — The right to specify which among his various
obligations to the same creditor is to be satisfied first rests with the debtor, as provided by
Article 1252 of the Civil Code. At the time the petitioner made the payments, he made it
clear to respondent that they were to be applied to his rental obligations on the Fairview wet
market property. Though he entered into various contracts and obligations with respondent,
including a lease contract over eleven (11) property on Quezon City and sale of eight (8)
heavy equipment, all the payments made, about P11,000,000.00 were to be applied to
rental and security deposit on the Fairview wet market property.

2. ID.; ID.; ID.; ID.; CONSENT TO CHANCE THE MANNER OF APPLICATION

OF PAYMENT MUST BE CLEAR AND DEFINITE; CASE AT BAR. — There was no clear
assent by petitioner to the change in the manner of application of payment. The petitioner's
silence as regards the application of payment by respondent cannot mean that he
consented thereto. There was no meeting of the minds. Though an offer may be made, the
acceptance of such offer must be unconditional and unbounded in order that concurrence
can give rise to a perfected contract. Hence, petitioner could not be in estoppel. Assuming
arguendo that, as alleged by respondent, petitioner did not, at the time the payments were
made, choose the obligation to be satisfied first, respondent may exercise the right to apply
the payments to the other obligations to petitioner. But this is subject to the condition that
the petitioner must give his consent. Petitioner's silence is not tantamount to consent. The
consent must be clear and definite. AaEc HC

3. ID.; ID.; ID.; ID.; GUIDELINE WHERE DEBTOR DID NOT DECLARE TO
WHICH OF HIS DEBTS PAYMENT IS TO BE APPLIED; CASE AT BAR. — Under the law,
if the debtor did not declare at the time he made the payment to which of his debts with the
creditor the payment is to be applied, the law provided the guideline — no payment is to be
made to a debt that is not yet due and the payment has to be applied first to the debt most
onerous to the debtor. In the instant case, the purchase price of the eight (8) heavy
equipment was not yet due at the time the payment was made, for there was no date set for
such payment. Neither was there a demand by the creditor to make the obligation to pay
the purchase price due and demandable. Hence, the application made by respondent is
contrary to the provision of the law. The lease over the Fairview wet market property is the
most onerous among all the obligations of petitioner to respondent. It was established that
the wet market is a going-concern and that petitioner has invested about P35,000,000.00, in
the form of improvements, on the property. Hence, petitioner would stand to lose more if
the lease would be rescinded, than if the contract of sale of heavy equipment would not
proceed.

DECISION

PARDO, J : p

The case before the Court is an appeal via certiorari seeking to set aside the
decision of the Court of Appeals 1 which affirmed that of the Regional Trial Court, Quezon
City, and the Metropolitan Trial Court, Quezon City ordering the ejectment of petitioner from
the property subject of the controversy. CHc ESa

The facts are as follows:

On December 27, 1990, petitioner Nereo J. Paculdo (hereafter Nereo) and

respondent Bonifacio C. Regalado (hereafter Bonifacio) entered into a contract of lease
over a 16,478 square meter parcel of land with a wet market building, located along Don
Mariano Marcos Avenue, Fairview Park, Quezon City. The contract was for twenty five (25)
years, commencing on January 1, 1991 and ending on December 31, 2015. For the first five
(5) years of the contract beginning December 27, 1990, Nereo would pay a monthly rental
of P450,000.00, payable within the first five (5) days of each month at Bonifacio's office,
with a 2% penalty for every month of late payment.
 Aside from the above lease, petitioner leased eleven (11) other property from
respondent, ten (10) of which were located within the Fairview compound, while the
eleventh was located along Quirino Highway, Quezon City. Petitioner also purchased from
respondent eight (8) units of heavy equipment and vehicles in the aggregate amount of
P1,020,000.00.

On account of petitioner's failure to pay P361,895.55 2 in rental for the month of May,
1992, and the monthly rental of P450,000.00 for the months of June and July 1992, on July
6, 1992, respondent sent a demand letter to petitioner demanding payment of the back
rentals, and if no payment was made within fifteen (15) days from receipt of the letter, it
would cause the cancellation of the lease contract. 3 Another demand letter followed this on
July 17, 1992, reiterating the demand for payment and for petitioner to vacate the subject
premises. 4

Without the knowledge of petitioner, on August 3, 1992, respondent mortgaged the

land subject of the lease contract, including the improvements which petitioner introduced
into the land amounting to P35,000,000.00, to Monte de Piedad Savings Bank, as security
for a loan in the amount of P20,000,000.00. 5

On August 12, 1992, and on subsequent dates thereafter, respondent refused to

accept petitioner's daily rental payments. 6

On August 20, 1992, petitioner filed with the Regional Trial Court, Quezon City an
action for injunction and damages seeking to enjoin respondent from disturbing his
possession of the property subject of the lease contract. 7 On the same day, respondent
filed with the Metropolitan Trial Court, Quezon City a complaint for ejectment against
petitioner. Attached to the complaint were the two (2) demand letters dated July 6 and July
17, 1992. 8

On August 25, 1992, five (5) days after the filing of the ejectment complaint,
respondent moved to withdraw the complaint on the ground that certain details had been
omitted in the complaint and must be re-computed.

On April 22, 1993, respondent re-filed the ejectment complaint with the Metropolitan
Trial Court, Quezon City. Computed from August 1992 until March 31, 1993, the monthly
reasonable compensation that petitioner was liable for was in the total sum of
P3,924,000.00. 9

On January 31, 1994, the Metropolitan Trial Court, Quezon City rendered a decision
in favor of respondent, the dispositive portion of which reads:

"WHEREFORE, judgment is hereby rendered in favor of the plaintiff and

against the defendant, as follows:

"1. Ordering the defendant and all persons claiming right under him to
vacate the leased premises located at Don Mariano Marcos Avenue, Fairview
Park, Quezon City, Metro-Manila covered by Transfer Certificate of Title RT-6883
of the Registry of Deeds of Quezon City;

"2. Ordering the defendant to pay the sum of P527,119.27 representing

the unpaid monthly rentals as of June 30, 1992 plus 2% interest thereon;
 "3. Ordering the defendant to pay the sum of P450,000.00 a month
plus 2% interest thereon starting July 1992 and every month thereafter until the
defendant and all persons claiming right under him shall have actually vacated
the premises and surrender possession thereof to the plaintiff;

"4. Ordering the defendant to pay the sum of P5,000,000.00 as and for
attorney's fees; and

"5. Ordering the defendant to pay the costs of suit.

"SO ORDERED." 10

In time, petitioner appealed to the Regional Trial Court, Quezon City, Branch 220. 11

On February 19, 1994, respondent, with the support of fifty (50) armed security
guards forcibly entered the property and took possession of the wet market building. 12

On July 6, 1994, the Regional Trial Court, Quezon City, Branch 220 rendered a
decision affirming in toto the decision of the Metropolitan Trial Court, to wit:

"WHEREFORE, the appealed decision dated January 31, 1994, for being
in accordance with the evidence presented and the law on the matter, is hereby
affirmed in toto.

"Let a writ of execution issue against defendant and his surety, to answer
for the decision of the lower court." 13

On the same day, the Regional Trial Court issued a writ of execution 14 whereupon,
petitioner vacated the subject premises voluntarily. By July 12, 1994, petitioner had
completely turned over possession of subject property to respondent.

Meanwhile, on July 21, 1994, petitioner filed a petition for review with the Court of
Appeals. 15 He alleged that he had paid the amount of P11,478,121.85 for security deposit
and rentals on the wet market building, but respondent, without his consent, applied
portions of the payment to his other obligations. The vouchers and receipts indicated that
the payments made were for rentals. Thus, at the time of payment petitioner had declared
as to which obligation the payment must be applied.

On February 10, 1995, the Court of Appeals promulgated its decision finding that
petitioner impliedly consented to respondent's application of payment to his other
obligations and, thus, dismissed the petition for lack of merit. 16

On March 3, 1995, petitioner filed a motion for reconsideration; 17 however, on

February 9, 1996 the Court of Appeals denied the motion. 18

Hence, this appeal. 19

At issue is whether petitioner was truly in arrears in the payment of rentals on the
subject property at the time of the filing of the complaint for ejectment.

As found by the Metropolitan Trial Court and Regional Trial Court, petitioner made a
total payment of P10,949,447.18, to respondent as of July 2, 1992.
 If the payment made by respondent applied to petitioner's other obligations is set
aside, and the amount petitioner paid be applied purely to the rentals on the Fairview wet
market building, there would be an excess payment of P1,049,447.18 as of July 2, 1992.
The computation in such case would be as follows:

Amount paid as of July 2, 1992 P10,949,447.18

Less:
Monthly rent from January 1991-July 1992
P450,000.00 x 19 months P8,550,000.00
Less:
Security deposit 1,350,000.00
===========
Excess amount paid P1,049,447.18

In the letter dated November 19, 1991, respondent proposed that petitioner's security
deposit for the Quirino lot, in the amount of P643,276.48, be applied as partial payment for
his account under the subject lot as well as to real estate taxes on the Quirino lot. 20
Petitioner interposed no objection, as evidenced by his signature signifying his conformity
thereto.

In an earlier letter, dated July 15, 1991, 21 respondent informed petitioner that the
payment was to be applied not only to petitioner's accounts under both the subject land and
the Quirino lot but also to heavy equipment bought by the latter from respondent. Petitioner
claimed that the amount applied as payment for the heavy equipment was critical because
it was equivalent to more than two (2) months rental of the subject property, which was the
basis for the ejectment case in the Metropolitan Trial Court.

The controversy stemmed from the fact that unlike the November 19, 1991 letter,
which bore a conformity portion with petitioner's signature, the July 15, 1991 letter did not
contain the signature of petitioner.

In nevertheless concluding that petitioner gave his consent thereto, the Court of
Appeals upheld both the lower court's and trial court's findings that petitioner received the
second letter and its attachment and he raised no objection thereto.

In other words, would petitioner's failure to object to the letter of July 15, 1991 and its
proposed application of payments amount to consent to such application?

Petitioner submits that his silence is not consent but is in fact a rejection.

The right to specify which among his various obligations to the same creditor is to be
satisfied first rests with the debtor, 22 as provided by law, to wit:

"Art. 1252. He who has various debts of the same kind in favor of one and
the same creditor, may declare at the time of making the payment, to which of
them the same must be applied. Unless the parties so stipulate, or when the
application of payment is made by the party for whose benefit the term has been
constituted, application shall not be made as to debts which are not yet due.

If the debtor accepts from the creditor a receipt in which an application of

 the payment is made, the former cannot complain of the same, unless there is a
cause for invalidating the contract." 23

At the time petitioner made the payments, he made it clear to respondent that they
were to be applied to his rental obligations on the Fairview wet market property. Though he
entered into various contracts and obligations with respondent, including a lease contract
over eleven (11) property in Quezon City and sale of eight (8) heavy equipment, all the
payments made, about P11,000,000.00, were to be applied to rental and security deposit on
the Fairview wet market property.

Respondent Regalado argues that assuming that petitioner expressed at the time of
payment which among his obligations were to be satisfied first, petitioner is estopped by his
assent to the application made by the respondent. This assent is inferred from the silence
of petitioner on the July 15, 1991 letter 24 containing a statement of the application of
payments, which was different from the application made by petitioner. A big chunk of the
amount paid by petitioner went into the satisfaction of an obligation which was not yet due
and demandable — the payment of the eight (8) heavy equipment amounting to about
P1,020,000.00.

The statement of account prepared by respondent was not the receipt contemplated
under the law. The receipt is the evidence of payment executed at the time of payment, and
not the statement of account executed several days thereafter.

There was no clear assent by petitioner to the change in the manner of application of
payment. The petitioner's silence as regards the application of payment by respondent
cannot mean that he consented thereto. There was no meeting of the minds. Though an
offer may be made, the acceptance of such offer must be unconditional and unbounded in
order that concurrence can give rise to a perfected contract. 25 Hence, petitioner could not
be in estoppel.aDSHCc

Assuming arguendo that, as alleged by respondent, petitioner did not, at the time the
payments were made, choose the obligation to be satisfied first, respondent may exercise
the right to apply the payments to the other obligations of petitioner. But this is subject to
the condition that the petitioner must give his consent. Petitioner's silence is not tantamount
to consent. The consent must be clear and definite.

Under the law, if the debtor did not declare at the time he made the payment to which
of his debts with the creditor the payment is to be applied, the law provided the guideline —
no payment is to be made to a debt that is not yet due 26 and the payment has to be applied
first to the debt most onerous to the debtor. 27

In the instant case, the purchase price of the eight (8) heavy equipment was not yet
due at the time the payment was made, for there was no date set for such payment. Neither
was there a demand by the creditor to make the obligation to pay the purchase price due
and demandable. 28 Hence, the application made by respondent is contrary to the
provisions of the law.

The lease over the Fairview wet market property is the most onerous among all the
obligations of petitioner to respondent. It was established that the wet market is a going-
concern and that petitioner has invested about P35,000,000.00, in the form of
improvements, on the property. Hence, petitioner would stand to lose more if the lease
would be rescinded, than if the contract of sale of heavy equipment would not proceed.

The decision of the Court of Appeals was based on a misapprehension of the facts
and the law on the application of payment. Hence, the ejectment case subject of the instant
petition must be dismissed, without prejudice to the determination and settlement of the
money claims of the parties inter se .

WHEREFORE, the Court GRANTS the petition. The Court REVERSES and SETS
ASIDE the decision of the Court of Appeals in CA-G.R. SP No. 34634.

ACCORDINGLY, the Court REVERSES the decision of the Regional Trial Court,
Quezon City, Branch 220 in Civil Case No. 94-20813, and dismisses the complaint filed
with the Metropolitan Trial Court, Quezon City, Branch 36 in Civil Case No. MTC XXXVI-
7089.

No costs.

SO ORDERED.

Davide, Jr ., C .J., Puno, Kapunan and Ynares-Santiago, JJ., concur.

Footnotes

1. In CA-G.R. SP No. 34634, promulgated on February 10, 1995, Reyes, R. T., J., ponente,
Herrera, O. M. and Gutierrez, A. S., JJ., concurring, Rollo, pp. 138-148.

2. This represents the balance of the rental payment due from petitioner, computed as
follows: Partial payment of P255,104.45 made on July 24, 1992; P90,000.00 on July 28,
1992; and P3,674.67 or a sum total of P188,779.12 from where the 2% stipulated penalty
interest must first be satisfied, leaving an amount of P88,104.45 to be applied and
deducted from the P450,000.00 rental due for the month of May, 1992.

3. Complaint, Annex "C", RTC Record, Vol. I, p. 13.

4. Complaint, Annex "D", RTC Record, Vol. I, p. 14.

5. Petition for Review, CA Rollo, pp. 2-24, at p. 5.

6. Answer, RTC Record, Vol. I, pp. 35-45.

7. Ibid., p. 40.

8. Originally raffled to Branch 33 (later transferred to Branch 36) and docketed as Civil
Case No. 7089, Answer, RTC Record, Vol. I, p. 41.

9. Complaint, RTC Record, Vol. I, pp. 1-7, at p. 5.

10. Decision, Civil Case No. MTC XXXVI-7089, Petition, Annex "D", Rollo, pp. 98-102.

11. Docketed as Civil Case No. Q-94-20813.

12. Petition for Review, CA Rollo, pp. 2-24, at p. 7.

13. Ibid., pp. 25-33.

14. Ibid., pp. 34-35.

15. Docketed as CA-G.R. SP No. 34634, CA Rollo, pp. 2-24.

16. Petition Annex "D", Rollo, pp. 138-148.

17. Petition, Annex "E", Rollo, pp. 149-182.

18. Resolution, Rollo, pp. 193-194.

19. Petition filed on March 19, 1996, Rollo, pp. 8-62. On June 18, 1997, we gave due
course to the petition, Rollo, p. 281.

20. Rollo, p. 185.

21. Rollo, p. 183.

22. People's Surety and Insurance Co., Inc. v. Gabriel and Sons Traders Co. Inc ., 118 Phil.
1418 [1963].

23. Civil Code.

24. Supra, Note 21.

25. Maria Cristina Fertilizer Corp. v. Court of Appeals , 339 Phil. 349 [1997].

26. Article 1252, Civil Code.

27. Article 1254, Civil Code; Espina v. Court of Appeals , G.R. No. 116805, June 22, 2000.

28. Rose Packing Co., Inc. v. Court of Appeals , 167 SCRA 309, 318 [1988].