The Supreme Court clarified that a creditor is not obligated to accept partial payments unless expressly stipulated in their agreement. This ruling reinforces the principle that debtors must fulfill their obligations completely, ensuring creditors receive what was originally agreed upon without being forced to accept piecemeal settlements. The decision underscores the importance of clear agreements regarding payment terms to avoid disputes over the fulfillment of obligations.

When ‘Almost’ Doesn’t Cut It: Can Partial Payment Truly Satisfy a Debt?

This case revolves around Food Terminal, Inc. (FTI), a government-owned corporation, and Tao Development, Inc. (TAO), a private company. In the early 1980s, TAO stored a significant quantity of onions at FTI’s cold storage facilities. Unfortunately, an ammonia leak damaged the onions, rendering them unfit for export. TAO then filed a complaint for damages against FTI due to negligence. The legal proceedings that followed spanned several years and multiple court levels, each weighing in on the matter.

After multiple appeals, the Supreme Court affirmed the decision of the Court of Appeals, ordering FTI to pay TAO a specific sum comprising actual damages, unearned profits, and attorney’s fees, with interest. The final ruling mandated a 6% interest per annum until the judgment became final and 12% thereafter until fully satisfied. The computation of the total amount due became contentious. TAO demanded a total of P7,194,453.60, while FTI computed its obligation at P7,148,433.72, a difference of less than 1%. FTI tendered a check for the lesser amount, which TAO encashed, but TAO then pursued a motion for execution to collect the remaining balance.

At the heart of the legal dispute is Article 1248 of the Civil Code, which addresses the issue of partial performance in fulfilling obligations. This provision explicitly states that a creditor cannot be compelled to accept partial payments unless there is an express agreement to the contrary. The law also notes an exception: when a debt is partly liquidated and partly unliquidated, the creditor may demand payment of the liquidated part without waiting for the liquidation of the unliquidated portion.

“ART. 1248. Unless there is an express stipulation to that effect, the creditor cannot be compelled partially to receive the prestations in which the obligation consists. Neither may the debtor be required to make partial payments. However, when the debt is in part liquidated and in part unliquidated, the creditor may demand and the debtor may effect the payment of the former without waiting for the liquidation of the latter”.

The Supreme Court emphasized that FTI was fully aware of TAO’s demand for P7,194,453.60. Despite this, FTI offered a lesser amount, which TAO initially refused, as they were entitled to do under Article 1248. TAO’s subsequent acceptance of the P7,148,433.72 after filing the motion for execution did not imply a waiver of their right to collect the full amount. It merely presented an opportunity for TAO to recover a substantial portion of the debt owed to them. The court found no indication that TAO had released FTI from its complete obligation after receiving the partial payment.

Furthermore, the Supreme Court declined to address FTI’s claim that TAO had agreed to its computation of the liability. This was deemed a factual issue raised too late in the proceedings, which the Court typically does not resolve. In essence, pure questions of fact are inappropriate for an appeal by certiorari under Rule 45. Even the appellate court’s conclusion that a letter allegedly supporting FTI’s position was a forgery was not subject to re-examination by the Supreme Court.

Ultimately, the Supreme Court sided with TAO, reinforcing the principle that creditors have the right to full payment unless otherwise stipulated. This ruling underscores the necessity for debtors to ensure they settle their obligations completely and for creditors to clearly assert their right to receive full payment. Partial payments, without explicit consent from the creditor, do not extinguish the debt.

FAQs

What was the key issue in this case?	The central issue was whether FTI’s partial payment of P7,148,433.72 to TAO fully satisfied its obligation under the Supreme Court’s earlier judgment, considering that TAO initially demanded a higher amount.
What does Article 1248 of the Civil Code say?	Article 1248 states that a creditor cannot be compelled to accept partial payments unless expressly stipulated. However, the creditor may demand payment of a liquidated debt without waiting for the liquidation of an unliquidated debt.
Why did the Supreme Court side with TAO?	The Court sided with TAO because FTI was aware of TAO’s demand for a specific amount but still offered a lesser amount. TAO’s acceptance of the partial payment did not waive their right to collect the remaining balance.
Did TAO’s encashment of FTI’s check mean they accepted the partial payment as full settlement?	No, the Court found that TAO’s acceptance and encashment of the check for the lesser amount did not indicate they agreed to release FTI from the full obligation. It was merely an opportunity to recover a portion of the debt.
What was the significance of the alleged forged letter in this case?	FTI presented a letter purportedly from TAO’s president, agreeing to the lesser amount. However, the Court of Appeals deemed this letter a forgery, and the Supreme Court did not re-examine this finding.
Can a debtor force a creditor to accept partial payments?	Generally, no. A creditor has the right to refuse partial payments unless there is an explicit agreement allowing for it or unless the debt is partially liquidated and partially unliquidated.
What happens if a debtor offers a lesser amount than what is demanded by the creditor?	The creditor can refuse the partial payment and demand the full amount owed. Accepting the partial payment does not automatically waive the right to collect the remaining balance.
What is an appeal by certiorari under Rule 45?	An appeal by certiorari under Rule 45 of the Rules of Court is a discretionary appeal to the Supreme Court on questions of law, not questions of fact.

This case reinforces the importance of clear communication and mutual agreement between debtors and creditors regarding payment terms. While partial payments can be accepted, the creditor retains the right to full compensation unless there is an explicit waiver. Navigating such disputes requires a nuanced understanding of contract law and creditor rights.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Food Terminal, Inc. vs. Hon. Reynaldo B. Daway and Tao Development, Inc., G.R. No. 157353, December 09, 2004