## Facts
In 1979, Trans-Pacific Industrial Supplies, Inc. (petitioner) obtained financial accommodations from Associated Bank (respondent) totaling PHP 1,300,000, secured by promissory notes, a mortgage on three parcels of land, and a chattel mortgage on petitioner’s stock. Facing difficulties in repayment, the petitioner requested the restructuring of the loan, which respondent bank granted, culminating in a new loan amounting to PHP 1,213,400, evidenced by three new promissory notes. Subsequently, the originally mortgaged land parcels were released and replaced with two other parcels and a new chattel mortgage. The proceeds from the sale of the released lands were turned over to the bank.
In December 1985, despite returning the promissory notes marked “PAID” to the petitioner, the Associated Bank demanded PHP 492,100 as accrued interest on one of the promissory notes. Preliminary willingness by Trans-Pacific to pay was expressed but later changed to litigation seeking the declaration of full payment and demand for damages from Associated Bank. The Regional Trial Court (RTC) ruled in favor of Trans-Pacific. However, this decision was appealed to the Court of Appeals (CA), which subsequently reversed the RTC’s decision.
## Issues
1. Whether the accrued interest of PHP 492,100 has been paid following Article 1176 of the Civil Code.
2. Whether the delivery of documents evidencing principal obligation implied renunciation of the ancillary obligation of paying interest, under Article 1273 of the Civil Code.
3. Whether the petitioner has fully paid its obligation conforming to Article 1234 of the Civil Code.
4. Whether the Court of Appeals erred in awarding attorney’s fees to Associated Bank.
## Court’s Decision
The Supreme Court denied the petition and affirmed the Court of Appeals’ decision, addressing the issues as follows:
### 1. Accrued Interest
**Legal Question**: Whether the accrued interest of PHP 492,100 was deemed paid under Article 1176 of the Civil Code.
**Resolution**: The Court established that the presumption under Article 1176 does not hold because the interest was not explicitly reserved upon the receipt of payment for the principal. This presumption was rebutted by sufficient evidence showing that the interest remained unpaid.
### 2. Renunciation of Ancillary Obligation
**Legal Question**: Whether the delivery of promissory notes implied renunciation of the obligation to pay interest.
**Resolution**: The petitioner presented duplicates, not the originals, invalidating the presumption under Article 1271, which pertains only to original copies. The Court held that the duplicates do not signify renunciation of the ancillary obligation to pay interest.
### 3. Full Payment of Obligation
**Legal Question**: Whether Trans-Pacific fulfilled its financial obligation under Article 1234 of the Civil Code.
**Resolution**: The Court affirmed that partial payment of the principal does not equate to the full discharge of the obligation, especially when the unpaid interest remains. Documented communications from Trans-Pacific acknowledged the outstanding interest, nullifying assertions of full payment.
### 4. Award of Attorney’s Fees
**Legal Question**: Whether the award of attorney’s fees by the Court of Appeals was justified.
**Resolution**: The Supreme Court found that the petitioner’s actions were not founded on a genuine belief, as indicated by prior admissions of the unpaid interest. Consequently, the award of PHP 15,000 in attorney’s fees was deemed justifiable.
## Doctrine
1. **Article 1271 of the Civil Code**: Delivery of a private document evidencing a credit implies renunciation of the claim; applicable to original documents, not duplicates.
2. **Article 1234 of the Civil Code**: Payment of interest is necessary for the credit to be deemed fully settled.
3. **Article 2208 of the Civil Code**: Unfounded civil actions entitle the respondent to attorney’s fees.
## Class Notes
1. **Article 1271, Civil Code**: Presumption of renunciation applies only to the original document, not duplicates.
2. **Article 1234, Civil Code**: Full payment of obligations requires explicit settlement of both principal and interest.
3. **Article 2208, Civil Code**: Unfounded suits justify awards of attorney’s fees.
## Historical Background
This case provides a significant precedent regarding the handling of financial obligations and the interpretation of presumptions under the Civil Code of the Philippines. The Court’s ruling emphasized the importance of distinguishing between original and duplicate documents, as well as the necessity for concrete evidence in financial disputes. The decision reflects standards for fair dealings in financial transactions and aims to uphold contractual obligations’ integrity, especially regarding interest payments. Essence in litigation history captures the measures courts take to uphold financial accountability balanced against legal presumptions.
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