NEGO Digests 093015 CFI: Credit, in its usual meaning, is a sum
credited on the books of a company to a person
Republic v. PNB
PAL v. CA
Cebu v. Alegre
BPI v. Sps. Royeca
Fortunado v. CA
Republic v. PNB (1961)
Bautista Angelo, J.
FACTS:
The Republic filed before the Manila CFI a
complaint for escheat of unclaimed bank deposits
balances under Act 3936 against several banks,
including the First National City Bank of New York.
o Allegation: Pursuant to Act 3936, Sec. 2,
defendant banks forwarded to the Philippine
Treasurer a statement under oath of their
managing officials of all the credits and
deposits held by them in favor of persons
known to be dead or who have not made
deposits or withdrawals during 10+ years
o Prayer: That said credits and deposits be
escheated to the Republic by ordering
defendant banks to deposit them to its credit
with the Philippine Treasurer
First National City Bank of NYs Answer: While it
admits that savings deposits, prewar inactive
accounts, and sundry accounts, totaling more than
P100,000, which remained dormant for 10+ years,
are subject to escheat, it inadvertently included in
its report to the Philippine Treasurer items totaling
P18,589.89, which were not credits or deposits
contemplated under Act 3936.
o Prayer: The items totaling P18,589.89 be not
included in the Republics claim
The CFI held that cashiers or managers checks
and demand drafts as those which defendant
wants excluded from the complaint come under Act
3936, but not the telegraphic transfer payment
orders, dismissing the complaint as to the
telegraphic transfer payment orders.
Upon the First National City Bank of NYs MR, the
CFI changed its view and held that even the
demand drafts do not come within the purview of
Act 3936, amending its original decision.
The Republic appealed.
ISSUES + RULING:
Intro to the Issue
Act 3936, Sec. 1: Unclaimed balances within the
meaning of this Act shall include credits or deposits
of money, bullion, security or other evidence of
indebtedness of any kind, and interest thereon with
banks, as hereinafter defined, in favor of any
person unheard from for a period of ten years or
more. Such unclaimed balances, together with the
increase and proceeds thereof, shall be deposited
with the Insular Treasurer to the credit of the
Government of the Philippine Islands to be used as
the Philippine Legislature may direct.
Unclaimed balances subject to escheat includes
credits or deposits of money or other evidence of
indebtedness of any kind with banks in favor of any
person unheard from for 10+ years.
who appears entitled to it.
o It presupposes a creditor-debtor relationship
and implies ability, because of property or
estates, to make a promised payment. (In
re Ford)
o It is the correlative to debt or indebtedness
and that which is due to any person, as
distinguished from that which he owes.
(Mountain Motor Co. vs. Solof; Eric vs.
Walsh; See also Libby vs. Hopkins; Prudential
Insurance Co. of America vs. Nelson; Barnes
vs. Treat)
The same is true with deposits in banks, where
the relationship created between the depositor and
the bank is also creditor-debtor. (NCC 1980; Gullas
v. National Bank; Gopoco Grocery, et al. v. Pacific
Coast Biscuit Co., et al.)
Do the demand draft and telegraphic orders come within
the meaning of the term "credits" or "deposits" employed
in the law? NO (for demand drafts) and YES (for
telegraphic orders).
Can the import of demand drafts and telegraphic orders be
considered as a sum credited on the books of the bank to a
person who appears to be entitled to it? NO (for demand
drafts) and YES (for telegraphic orders).
Do demand drafts and telegraphic orders create a creditor-
debtor relationship between drawee and the payee? NO
(for demand drafts) and YES (for telegraphic orders).
Combined discussion
Demand drafts
o A demand draft is a bill of exchange payable
on demand. (Arnd vs. Aylesworth; Ward vs.
City Trust Company; Bank of Republic vs.
Republic State Bank)
As a bill of exchange, a draft is an open
letter of request from, and an order by,
one person on another to pay a sum of
money therein mentioned to a 3 rd person,
on demand or at a future time therein
specified. (Words and Phrases)
The term "draft" is often used, and is the
common term, for all bills of exchange and
the words "draft" and "bill of exchange"
are used indiscriminately. (Ennis vs.
Coshoctan Nat. Bank; Hinnemann vs.
Rosenback; Wilson vs. Bechenau)
o However, a bill of exchange under the NIL (Act
2031) does not operate as an assignment of
funds in the hands of the drawee, who is not
liable on the instrument until he accepts it, as
is meant by NIL, Sec. 127: "A bill of exchange
of itself does not operate as an assignment of
the funds in the hands of the drawee available
for the payment thereon and the drawee is not
liable on the bill unless and until he accepts
the same."
For a drawee to be liable on the draft and
be obligated to the payee, he must first
accept the draft.
For drafts or bills of exchange, they need
to be presented, either for acceptance or
for payment, within a reasonable time
after their issuance or after their last
NEGO: Digests | 093015 | kb | 1
 negotiation, as the case may be (Act 2031,
Sec. 71)
Failure to make presentment will discharge
the drawer from liability or to the extent of
the loss caused by the delay (Act 2031,
Sec. 186)
o Since it is admitted that the demand drafts
involved have not been presented, the First
National City Bank of NY never had any chance
of accepting or rejecting them.
o Thus, First National City Bank of NY never
became a debtor of the payee and the drafts
cannot be considered as credits subject to
escheat within the meaning of the law.
o A demand draft is different from a
cashier's or manager's cheek, since it has
been held that the cashiers or
managers check is a primary obligation
of the bank, which issues it and
constitutes its written promise to pay
upon demand.
A cashier's check has been
characterized in In Re Bank of the
United States: A cashier's check
issued by a bankis not an ordinary
draft. The latter is a bill of exchange
payable [sic] demand. It is an order
upon a third party purporting to
drawn upon a deposit of funds.A
cashier's check isthe primary
obligation of the bank which issues
itand constitutes its written
promise to pay upon demand.
o The following definitions by the Republic
support the aforementioned view:
A cashier's check is a check of the
bank's cashier on his or another bank.
It is, in effect, a bill of exchange
drawn by a bank on itself and
accepted in advance by the act of
issuance.
A cashier's check issued on request of
a depositor is the substantial
equivalent of a certified check and
the deposit represented by the check
passes to the credit of the
checkholder, who becomes a
depositor to that amount. (Lummus
Cotton Gin Co. v. Walker)
A cashier's check, being a bill of
exchange drawn by a bank on itself,
and accepted in advance by the act of
issuance, is not subject to
countermand by the payee after
indorsement and has the same legal
effects as a certificate deposit or a
certified check. (Walker v. Sellers)
o A demand draft, therefore, is not of the
same category as a cashier's check,
which should come within the purview of
the law.
Telegraphic orders
o The case is different as to telegraphic orders.
Since the transaction is for the
establishment of a telegraphic or cable
transfer, the agreement to remit creates a
contractual obligation termed a purchase
and sale transaction.
o The purchaser of a telegraphic transfer, upon
payment, completes the transaction insofar as
he is concerned, though insofar as the
remitting bank is concerned, the contract is
executory until the credit is established.
Sol Gen: This is so because the drawer
bank was already paid the value of the
telegraphic transfer payment order.it
appears in the books of the defendant
bank that the amounts represented by the
telegraphic payment orders appear in the
names of the respective payees. If the
latter choose to demand payment of their
telegraphic transfers at the time the
samewerereceived by the defendant
bankthis bank would have to pay
them.if the payees decide to have their
money remain for sometime in the
defendant bank, can the latter maintain
that the ownership of said telegraphic
payment orders is now with the drawer
bank? The latter was already paid the
value of the telegraphic payment orders
otherwise it would not have transmitted
the same to the defendant bank. Hence, it
is absurd to say that the drawer banks are
still the owners of said telegraphic
payment orders.
DISPOSITION: The decision of the trial court is modified in
the sense that the items specifically referred to and listed
under paragraph 3 of appellee bank's answer representing
telegraphic transfer payment orders should be escheated in
favor of the Republic of the Philippines.
PAL v. CA (January 30, 1990)
GUTIERREZ, JR., J.:
*Payment by check does not extinguish a judgment debt.
FACTS:
1967: Respondent Amelia Tan, under the name and
style of Able Printing Press commenced a
complaint for damages against PAL.
CFI ruled in favor of her. CA affirmed with
modification as to amount.
Notice of judgment was sent by CA to TC and MR
was filed by Amelia. Denied. Thus, the judgment
became final and executory and on May 31, 1977,
judgment was correspondingly entered.
The case was remanded to TC for execution and on
September 2,1977, Amelia Tan filed a motion
praying for the issuance of a writ of execution of
the judgment rendered by CA.
Oct 1977: TC, presided over by Judge Galano,
issued its order of execution with the
corresponding writ in favor of Amelia. The writ
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 was duly referred to Deputy Sheriff Emilio Z. Reyes
for enforcement.
Fen 1978: Amelia moved for the issuance of an
alias writ of execution stating that the judgment
rendered remained unsatisfied.
PAL filed an opposition stating that it had already
fully paid its obligation to Amelia through the
deputy sheriff Reyes, as evidenced by cash
vouchers properly signed and receipted by Reyes.
(Note: The payment by check named the sheriff as
payee and not Amelia Tan)
CA denied the issuance of the alias writ for being
premature, ordering the executing sheriff Reyes to
appear with his return and explain the reason for
his failure to surrender the amounts paid to him by
PAL.
However, the order could not be served upon
Deputy Sheriff Reyes who had absconded or
disappeared.
Amelia then filed a motion for the issuance of a
partial alias writ of execution.
Amelia then filed a motion to withdraw "Motion for
Partial Alias Writ of Execution" with Substitute
Motion for Alias Writ of Execution. CA granted this
motion.
PAL received a copy of the first alias writ of
execution issued on the same day directing Special
Sheriff del Rosario to levy on execution of P25K
with legal interest from extra-judicial demand by
Amelia through a letter. Levy was also ordered for
P5K as attorney's fees.
PAL moved to quash the alias writ of execution
stating that no return of the writ had as yet been
made by Deputy Sheriff Reyes and that the
judgment debt had already been fully satisfied.
Deputy Sheriff del Rosario served a notice of
garnishment on the depository bank of PAL, Far
East Bank and Trust Company, Rosario Branch,
Binondo, Manila, through its manager and
garnished PAL's deposit in (P64,408.00 as of May
16, 1978).
Petition for certiorari by PAL.
ISSUE:Can an alias writ of execution be issued without a
prior return of the original writ by the implementing officer?
(YES)
Indeed, technicality cannot be countenanced to
defeat the execution of a judgment for execution is
the fruit and end of the suit and is very aptly called
the life of the law. A judgment cannot be rendered
nugatory by the unreasonable application of a
strict rule of procedure. Vested rights were never
intended to rest on the requirement of a return, the
office of which is merely to inform the court and
the parties, of any and all actions taken under the
writ of execution. Where such information can be
established in some other manner, the absence of
an executing officer's return will not preclude a
judgment from being treated as discharged or
being executed through an alias writ of execution
as the case may be.
CASE AT BAR: Where the return cannot be
expected to be forthcoming, to require the same
would be to compel the enforcement of rights
under a judgment to rest on an impossibility,
thereby allowing the total avoidance of judgment
debts. So long as a judgment is not satisfied, a
plaintiff is entitled to other writs of execution. It is
a well known legal maxim that he who cannot
prosecute his judgment with effect, sues his case
vainly.
More important in the determination of the
propriety of TCs issuance of an alias writ of
execution is the issue of satisfaction of
judgment.
ISSUE: Under the peculiar circumstances surrounding this
case, did the payment made to the absconding sheriff by
check in his name operate to satisfy the judgment debt?
(NO)
The plaintiff who has won her case should not be
adjudged as having sued in vain. To decide
otherwise would not only give her an empty but a
pyrrhic victory.
It should be emphasized that under the initial
judgment, Amelia Tan was found to have been
wronged by PAL. She filed her complaint in 1967.
After ten (10) years of protracted litigation, Ms. Tan
won her case. It is now 1990. Almost twenty-two
(22) years later, Ms. Tan has not seen a centavo of
what the courts have solemnly declared as
rightfully hers. Through absolutely no fault of her
own, Ms. Tan has been deprived of what,
technically, she should have been paid from the
start, before 1967, without need of her going to
court to enforce her rights. And all because PAL
did not issue the checks intended for her, in
her name.
Payment to the absconding sheriff by check in his
name did not operate as a satisfaction of the
judgment debt.
In general, a payment, in order to be effective to
discharge an obligation, must be made to the
proper person. NCC Article 1240: Payment shall be
made to the person in whose favor the obligation
has been constituted, or his successor in interest,
or any person authorized to receive it.
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 Thus, payment must be made to the obligee
himself or to an agent having authority, express or
implied, to receive the particular payment.
Payment made to one having apparent authority to
receive the money will, as a rule, be treated as
though actual authority had been given for its
receipt. Likewise, if payment is made to one who
by law is authorized to act for the creditor, it will
work a discharge. The receipt of money due on
ajudgment by an officer authorized by law to
accept it will, therefore, satisfy the debt.
o The theory is where payment is made to a
person authorized and recognized by the
creditor, the payment to such a person so
authorized is deemed payment to the
creditor. Under ordinary
circumstances, payment by the
judgment debtor in the case at bar, to
the sheriff should be valid payment to
extinguish the judgment debt.
BUT, there are circumstances in this case,
however, which compel a different conclusion:
o Payment made by the PAL was not in cash
or legal tender but in checks. The checks
were not payable to Amelia Tan or Able
Printing Press but to the absconding
sheriff.
o Did such payments extinguish the
judgment debt? NO. NCC Art 1249: The
delivery of promissory notes payable to
order, or bills of exchange or other
mercantile documents shall produce the
effect of payment only when they
have been cashed, or when through the
fault of the creditor they have been
impaired. In the meantime, the action
derived from the original obligation shall
be held in abeyance.
In the absence of an agreement, either express or
implied, payment means the discharge of a debt or
obligation in money and unless the parties so
agree, a debtor has no rights, except at his own
peril, to substitute something in lieu of cash as
medium of payment of his debt. Consequently,
unless authorized to do so by law or by consent of
the obligee a public officer has no authority to
accept anything other than money in
payment of an obligation under a judgment
being executed. Strictly speaking, the acceptance
by the sheriff of PAL's checks, in the case at bar,
does not, per se, operate as a discharge of the
judgment debt.
Since a negotiable instrument is only a substitute
for money and not money, the delivery of such an
instrument does not, by itself, operate as payment.
A check, whether a manager's check or ordinary
cheek, is not legal tender, and an offer of a check
in payment of a debt is not a valid tender of
payment and may be refused receipt by the
obligee or creditor. Mere delivery of checks does
not discharge the obligation under a judgment. The
obligation is not extinguished and remains
suspended until the payment by commercial
document is actually realized.
If bouncing checks had been issued in the
name of Amelia Tan and not the Sheriff's,
there would have been no payment. After
dishonor of the checks, Ms. Tan could have run
after other properties of PAL. The theory is that she
has received no value for what had been awarded
her. Because the checks were drawn in the name
of Reyes, neither has she received anything. The
same rule should apply.
PAL: If it had paid in cash to Sheriff Reyes, would
there have been payment in full legal
contemplation?
o SC: The reasoning is logical, but is it valid
and proper? Logic has its limits in decision
making. We should not follow rulings to
their logical extremes if in doing so we
arrive at unjust or absurd results.
o In the first place, PAL did not pay in cash.
It paid in cheeks.And second, payment in
cash always carries with it certain
cautions. Nobody hands over big amounts
of cash in a careless and inane manner.
Payment in checks is precisely intended to
avoid the possibility of the money going to
the wrong party. The situation is entirely
different where a Sheriff seizes a car, a
tractor, or a piece of land. Logic often has
to give way to experience and to reality.
Having paid with checks, PAL should have
done so properly.
Payment in money or cash to the implementing
officer may be deemed absolute payment of the
judgment debt but the Court has never, in the least
bit, suggested that judgment debtors should settle
their obligations by turning over huge amounts of
cash or legal tender to sheriffs and other executing
officers. Payment in cash would result in damage
or interminable litigations each time a sheriff with
huge amounts of cash in his hands decides to
abscond.
It is, indeed, out of the ordinary that checks
intended for a particular payee are made out in the
name of another. Making the checks payable to the
judgment creditor would have prevented the
encashment or the taking of undue advantage by
the sheriff, or any person into whose hands the
checks may have fallen, whether wrongfully or in
behalf of the creditor. The issuance of the checks in
the name of the sheriff clearly made possible the
misappropriation of the funds that were withdrawn.
Section 15, Rule 39: Execution of money
judgments. The officer must enforce an
execution of a money judgment by levying on all
the property, real and personal of every name and
nature whatsoever, and which may be disposed of
for value, of the judgment debtor not exempt from
execution, or on a sufficient amount of such
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 property, if they be sufficient, and selling the
same, and paying to the judgment creditor, or
his attorney, so much of the proceeds as will
satisfy the judgment. ...
o Thus, after levy or garnishment, for a
judgment to be executed there is the
requisite of payment by the officer to the
judgment creditor, or his attorney, so
much of the proceeds as will satisfy the
judgment and none such payment had
been concededly made yet by the
absconding Sheriff to the private
respondent Amelia Tan. The ultimate and
essential step to complete the execution of
the judgment not having been performed
by the City Sheriff, the judgment debt
legally and factually remains unsatisfied.
Strictly speaking execution cannot be
equated with satisfaction of a judgment.
Under unusual circumstances as those
obtaining in this petition, the distinction
comes out clearly.
Execution is the process which carries into effect a
decree or judgment, whereas the satisfaction of a
judgment is the payment of the amount of the writ,
or a lawful tender thereof, or the conversion by
sale of the debtor's property into an amount equal
to that due, and, it may be done otherwise than
upon an execution. Levy and delivery by an
execution officer are not prerequisites to the
satisfaction of a judgment when the same has
already been realized in fact (Section 47, Rule 39).
Execution is for the sheriff to accomplish while
satisfaction of the judgment is for the creditor to
achieve. Section 15, Rule 39 merely provides the
sheriff with his duties as executing officer including
delivery of the proceeds of his levy on the debtor's
property to satisfy the judgment debt. It is but to
stress that the implementing officer's duty should
not stop at his receipt of payments but must
continue until payment is delivered to the obligor
or creditor.
DISPOSITION: Petition DISMISSED.
NARVASA, J., dissenting (sheriff is authorized; no
difference bet cash and check since with authority):
The execution of final judgments and orders is a
function of the sheriff, an officer of the court whose
authority is by and large statutorily determined to
meet the particular exigencies arising from or
connected with the performance of the multifarious
duties of the office. It is the acknowledgment of the
many dimensions of this authority, defined by
statute and chiselled by practice, which compels
me to disagree with the decision reached by the
majority.
A consideration of the wide latitude of discretion
allowed the sheriff as the officer of the court most
directly involved with the implementation and
execution of final judgments and orders.
One of a sheriff s principal functions is to execute
final judgments and orders.
The sheriffs sale extinguishes the liability of the
judgment debtor either in fun, if the price paid by
the highest bidder is equal to, or more than the
amount of the judgment or pro tanto if the price
fetched at the sale be less. Such extinction is not in
any way dependent upon the judgment creditor's
receiving the amount realized, so that the
conversion or embezzlement of the proceeds of the
sale by the sheriff does not revive the judgment
debt or render the judgment creditor liable anew
therefor.
So, also, the taking by the sheriff of, say,
personal property from the judgment debtor
for delivery to the judgment creditor, in
fulfillment of the verdict against him,
extinguishes the debtor's liability; and the
conversion of said property by the sheriff, does not
make said debtor responsible for replacing the
property or paying the value thereof.
In the instances where the Rules allow or direct
payments to be made to the sheriff, the payments
may be made by check, but it goes without saying
that if the sheriff so desires, he may require
payment to be made in lawful money. If he accepts
the check, he places himself in a position where he
would be liable to the judgment creditor if any
damages are suffered by the latter as a result of
the medium in which payment was made. The
validity of the payment made by the judgment
debtor, however, is in no wise affected and the
latter is discharged from his obligation to the
judgment creditor as of the moment the check
issued to the sheriff is encashed and the proceeds
are received by Id. office. The issuance of the
check to a person authorized to receive it
operates to release the judgment debtor
from any further obligations on the
judgment.
That the sheriff functions as a conduit of the court
is further underscored by the fact that one of the
requisites for appointment to the office is the
execution of a bond, "conditioned (upon) the
faithful performance of his (the appointee's)
duties .. for the delivery or payment to
Government, or the person entitled thereto, of all
properties or sums of money that shall officially
come into his hands" (sec. 330, Revised
Administrative Code).
That the checks were made out in the sheriffs
name (a practice, by the way, of long and common
acceptance) is of little consequence if juxtaposed
with the extent of the authority explicitly granted
him by law as the officer entrusted with the power
to execute and implement court judgments. The
sheriffs requirement that the checks in payment of
the judgment debt be issued in his name was
simply an assertion of that authority; and PAL's
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 compliance cannot in the premises be faulted
merely because of the sheriffs subsequent
malfeasance in absconding with the payment
instead of turning it over to the judgment creditor.
If payment had been in cash, no question about its
validity or of the authority and duty of the sheriff to
accept it in settlement of PAL's judgment obligation
would even have arisen. Simply because it was
made by checks issued in the sheriff s name does
not warrant reaching any different conclusion.
FELICIANO, J., dissenting (concur with Narvasa and
Padilla; no difference if check issued and not cash):
Under our law only cash is legal tender and that
the sheriff can be compelled to accept only
cash and not checks, even if made out to the name
of the judgment creditor. The sheriff could have
quite lawfully required PAL to deliver to him only
cash, i.e., Philippine currency. If the sheriff had
done so, and if PAL had complied with such a
requirement, as it would have had to, one would
have to agree that legal payment must be deemed
to have been effected. It requires no particularly
acute mind to note that a dishonest sheriff could
easily convert the money and abscond. The fact
that the sheriff in the instant case required, not
cash to be delivered to him, but rather a check
made out in his name, does not change the legal
situation. PAL did not thereby become negligent; it
did not make the loss anymore possible or
probable than if it had instead delivered plain cash
to the sheriffs.
It seems to me that the majority opinion's real
premise is the unspoken one that the judgment
debtor should bear the risk of the fragility of the
sheriff s virtue until the money or property parted
with by the judgment debtor actually reaches the
hands of the judgment creditor. Risk is most
appropriately borne not by the judgment
debtor, nor indeed by the judgment creditor,
but by the State itself. The Court requires all
sheriffs to post good and adequate fidelity bonds
before entering upon the performance of their
duties and, presumably, to maintain such bonds in
force and effect throughout their stay in office. The
judgment creditor, in circumstances like those of
the instant case, could be allowed to execute upon
the absconding sheriff s bond.
PADILLA, J., dissenting opinion (sheriff authorized; duty of
sheriff to pay is different from satisfaction of judgment
obligation; no difference if sheriff named payee):
There is no question that Sheriff Reyes, in
enforcing the writ of execution, was acting with full
authority as an officer of the law and not in his
personal capacity. Stated differently, PAL had every
right to assume that, as an officer of the law,
Sheriff Reyes would perform his duties as enjoined
by law. It would be grossly unfair to now charge
PAL with advanced or constructive notice that Mr.
Reyes would abscond and not deliver to the
judgment creditor the proceeds of the writ of
execution. If a judgment debtor cannot rely on and
trust an officer of the law, as the Sheriff, whom
else can he trust?
Pursued to its logical extreme, if PAL had delivered
to Sheriff Reyes the amount of the judgment in
CASH, i.e. Philippine currency, with the
corresponding receipt signed by Sheriff Reyes, this
would have been payment by PAL in full legal
contemplation (Art 1240). It would be the duty of
Sheriff Reyes to pay to the judgment creditor the
proceeds of the execution i.e., the cash received
from PAL (under the above assumption). But, the
duty of the sheriff to pay the cash to the
judgment creditor would be a matter
separate the distinct from the fact that PAL
would have satisfied its judgment obligation
to Amelia Tan, the judgment creditor, by
delivering the cash amount due under the
judgment to Sheriff Reyes.
Did the situation change by PAL's delivery of its
two (2) checks totalling P30,000.00 drawn against
its bank account, payable to Sheriff Reyes, for
account of the judgment rendered against PAL? I
do not think so, because when Sheriff Reyes
encashed the checks, the encashment was in fact
a payment by PAL to Amelia Tan through Sheriff
Reyes, an officer of the law authorized to receive
payment, and such payment discharged PAL'S
obligation under the executed judgment.
The encashment by Sheriff Reyes of PAL's checks
delivered to him in his official capacity as Sheriff,
imposed an obligation on Sheriff Reyes to
pay and deliver the proceeds of the encashment
to Amelia Tan who is deemed to have acquired a
cause of action against Sheriff Reyes for his failure
to deliver to her the proceeds of the encashment
ALSO, when Sheriff Reyes served the writ of
execution on PAL, he (Reyes) was accompanied by
Amelia Tans counsel. Prudence dictated that when
PAL delivered to Sheriff Reyes the two (2)
questioned checks (payable to Sheriff Reyes), the
counsel should have insisted on their immediate
encashment by the Sheriff with the drawee bank in
order to promptly get hold of the amount belonging
to his client, the judgment creditor.
October 12, 1999
CEBU INTERNATIONAL FINANCE CORPORATION,
petitioner,vs.COURT OF APPEALS, VICENTE ALEGRE,
respondents.
QUISUMBING, J.:
FACTS:
On April 25, 1991, Vicente Alegre, invested with
CIFC, five hundred thousand (P500,000.00) pesos,
in cash. Petitioner issued a promissory note to
mature on May 27, 1991. The note for
(P516,238.67) covered private respondent's
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 placement plus interest at twenty and a half
(20.5%) percent for thirty-two (32) days.
On May 27, 1991, CIFC issued BPI Check for
(P514,390.94) in favor of ALEGRE as proceeds of
his matured investment plus interest. The CHECK
was drawn from CEBUs current account
maintained with (BPI).1wphi1.nt
On June 17, 1991, private respondent's wife
deposited the CHECK with Rizal Commercial
Banking Corp. (RCBC), in Puerto Princesa, Palawan.
BPI dishonored the CHECK with the annotation,
that the "Check (is) Subject of an Investigation."
BPI took custody of the CHECK pending an
investigation of several counterfeit checks drawn
against CIFC's aforestated checking account. BPI
used the check to trace the perpetrators of the
forgery.
Immediately, ALEGRE notified CIFC of the
dishonored CHECK and demanded, on several
occasions, that he be paid in cash. CIFC refused
the request, and instead instructed private
respondent to wait for its ongoing bank
reconciliation with BPI. Thereafter, private
respondent, through counsel, made a formal
demand for the payment of his money market
placement. In turn, CIFC promised to replace the
CHECK but required an impossible condition that
the original must first be surrendered.
On February 25, 1992, private respondent Alegre
filed a complaint for recovery of a sum of money
against the petitioner with the Regional Trial Court
of Makati (RTC-Makati), Branch 132.
On July 13, 1992, CIFC sought to recover its lost
funds and formally filed against BPI, a separate
civil action for collection of a sum of money with
the RTC-Makati, Branch 147. The collection suit
alleged that BPI unlawfully deducted from
CIFC's checking account, counterfeit checks
amounting to one million, seven hundred
twenty-four thousand, three hundred sixty-
four pesos and fifty-eight centavos
(P1,724,364.58). The action included the prayer
to collect the amount of the CHECK paid to Vicente
Alegre but dishonored by BPI.
Meanwhile, in response to Alegre's complaint with
RTC-Makati, Branch 132, CIFC filed a motion for
leave of court to file a third-party complaint against
BPI. BPI was impleaded by CIFC to enforce a right,
for contribution and indemnity, with respect to
Alegre's claim. CIFC asserted that the CHECK it
issued in favor of Alegre was genuine, valid and
sufficiently funded.
When Arieta was recalled on July 20, 1993, he
testified that on July 16, 1993, BPI encashed and
deducted the said amount from the account
of CIFC, but the proceeds, as well as the
CHECK remained in BPI's custody. The bank's
move was in accordance with the
Compromise Agreement 5 it entered with CIFC to
end the litigation in RTC-Makati, Branch 147. The
compromise agreement, which was submitted for
the approval of the said court, provided that:
Defendant [BPI] shall pay to the plaintiff [CIFC] the
amount of P1,724,364.58
Thereupon, defendant shall debit the sum of
P514,390.94 from the aforesaid current account
representing payment/discharge of BPI Check No.
513397 payable to Vicente Alegre.
In case CEBU is adjudged liable to Vicente Alegre
in Civil Case No. 92-515 arising from the alleged
dishonor of BPI Check No. 513397, CEBU cannot go
after the BPI
On July 27, 1993, BPI filed a separate
collection suit 7 against Vicente Alegre with
the RTC-Makati, Branch 62. The complaint
alleged that Vicente Alegre connived with
certain Lina A. Pena and Lita A. Anda and
forged several checks of BPI's client, CIFC.
The total amount of counterfeit checks was
P1,724,364.58.
BPI admitted that the CHECK, payable to Vicente
Alegre for P514,390.94, was deducted from BPI's
claim, hence, the balance of the loss incurred by
BPI was nine hundred fourteen thousand, one
hundred ninety-eight pesos and fifty-seven
centavos (P914,198.57), plus costs of suit for
twenty thousand (P20,000.00) pesos. The records
are silent on the outcome of this case.
On September 27, 1993, RTC-Makati, Branch 132,
rendered judgment in favor of Vicente Alegre.
CEBU contends that the provisions of the
Negotiable Instruments Law (NIL) are the pertinent
laws to govern its money market transaction with
private respondent, and not paragraph 2 of Article
1249 of the Civil Code. It wants BPI as drawee to
pay Alegre arguing BPI has already accepted the
check
ISSUES:
1.WHETHER OR NOT ARTICLE 1249 OF THE NEW CIVIL
CODE APPLIES IN THE PRESENT CASE (YES)
2.WHETHER OR NOT "BPI CHECK NO. 513397" WAS VALIDLY
DISCHARGED (NO)
SC:
1. Art. 1249 of the New Civil Code deals with a mode
of extinction of an obligation and expressly
provides for the medium in the "payment of
debts." It provides that:
The payment of debts in money shall be made in the
currency stipulated, and if it is not possible to deliver such
currency, then in the currency, which is legal tender in the
Philippines.
The delivery of promissory notes payable to order, or bills
of exchange or other mercantile documents shall produce
the effect of payment only when they have been
cashed, or when through the fault of the creditor they
have been impaired.
CEBU cites Section 137 of the Negotiable Instruments Law,
which states:
Liability of drawee retaining or destroying bill
Where a drawee to whom a bill is delivered for
acceptance destroys the same, or refuses within
twenty-four hours after such delivery or such
other period as the holder may allow, to
return the bill accepted or non-accepted to
the Holder, he will be deemed to have
accepted the same.
ART 1249 of NCC SHOULD APPLY
In the case at bar, the money market transaction
between the petitioner and the private respondent
is in the nature of a loan. The Alegre accepted the
CHECK, instead of requiring payment in money. Yet,
when he presented it to RCBC for encashment, as
early as June 17, 1991, the same was dishonored
by non-acceptance, with BPI's annotation: "Check
(is) subject of an investigation." These facts were
testified to by BPI's manager. Under these
circumstances, and after the notice of dishonor,
the holder has an immediate right of recourse
against the drawer, and consequently could
immediately file an action for the recovery of the
value of the check.
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 In a loan transaction, the obligation to pay a
sum certain in money may be paid in money,
which is the legal tender or, by the use of a
check. A check is not a legal tender, and
therefore cannot constitute valid tender of
payment.
Since a negotiable instrument is only a substitute
for money and not money, the delivery of such an
instrument does not, by itself, operate as payment.
A check, whether a manager's check or ordinary
check, is not legal tender, and an offer of a check
in payment of a debt is not a valid tender of
payment and may be refused receipt by the
obligee or creditor. Mere delivery of checks
does not discharge the obligation under a
judgment. The obligation is not extinguished
The spouses refused to pay on the ground
and remains suspended until the payment by
commercial document is actually realized
1. When the bank deducted the amount of the CHECK
from CIFC's current account, this did not ipso
facto operate as a discharge or payment of
the instrument. Although the value of the CHECK
was deducted from the funds of CIFC, it was not
delivered to the payee, Vicente Alegre. Instead, BPI
offset the amount against the losses it incurred
from forgeries of CIFC checks, allegedly committed
by Alegre. The confiscation of the value of the
check was agreed upon by CIFC and BPI. The
parties intended to amicably settle the collection
suit filed by CIFC with the RTC-Makati, Branch 147,
by entering into a compromise agreement.
The compromise agreement could not bind a party
who did not sign the compromise agreement nor
avail of its benefits. Thus, the stipulations in the
compromise agreement is unenforceable against
Vicente Alegre, not a party thereto. His money
could not be the subject of an agreement
between CIFC and BPI. Although Alegre's
money was in custody of the bank, the bank's
possession of it was not in the concept of an
owner. BPI cannot validly appropriate the
money as its own.
BPI's confiscation of Alegre's money constitutes
garnishment without the parties going through a
valid proceeding in court. Garnishment is an
attachment by means of which the plaintiff seeks
to subject to his claim the property of the
defendant in the hands of a third person or money
owed to such third person or a garnishee to the
defendant.
The garnishment procedure must be upon proper
order of RTC-Makati, Branch 62, the court who had
jurisdiction over the collection suit filed by BPI
against Alegre. In effect, CIFC has not yet
tendered a valid payment of its obligation to
the private respondent.
PETITION DISMISSED
BPI vs. Spouses Royeca (2008)
Nachura, J.
FACTS:
On August 23, 1993, spouses Reynaldo and
Victoria Royeca (respondents) executed and
delivered to Toyota Shaw, Inc. a Promissory
Note for P577,008.00 payable in 48 equal monthly
installments of P12,021.00, with a maturity date of
August 18, 1997.
The Promissory Note provides for a penalty of 3%
for every month or fraction of a month that an
installment remains unpaid.
To secure the payment of said Promissory Note,
respondents executed a Chattel Mortgage in
favor of Toyota over a certain motor vehicle.
Toyota, with notice to the spouses, executed a
Deed of Assignment transferring all its rights,
title, and interest in the Chattel Mortgage to Far
East Bank and Trust Company (FEBTC).
Claiming that the respondents failed to pay four (4)
monthly amortizations covering the period from
May 18, 1997 to August 18, 1997, FEBTC sent a
formal demand to the spouses on March 14, 2000
asking for the payment thereof, plus penalty.
that they had already paid their obligation to
FEBTC.
FEBTC filed a Complaint for Replevin and
Damages against the respondents
o Prayed for the delivery of the vehicle, with
an alternative prayer for the payment of
P48,084.00 plus interest and/or late
payment charges at the rate of 36% per
annum from May 18, 1997 until fully paid.
o The complaint likewise prayed for the
payment of P24,462.73 as attorneys fees,
liquidated damages, bonding fees and
other expenses incurred in the seizure of
the vehicle.
o The complaint was later amended to
substitute BPI as plaintiff when it
merged with and absorbed FEBTC.
Spouses Answer:
o They delivered to the Auto Financing
Department of FEBTC eight (8) postdated
checks in different amounts totaling
P97,281.78.
o The Acknowledgment Receipt, which they
attached to the Answer, showed that
FEBTC received the checks.
o The spouses further averred that they did
not receive any notice from the drawee
banks or from FEBTC that these checks
were dishonored.
o They explained that, considering this
and the fact that the checks were
issued three years ago, they believed
in good faith that their obligation had
already been fully paid.
Mr. Vicente Magpusaos Testimony
o He had been connected with FEBTC since
1994 and had assumed the position of
Account Analyst since its merger with BPI.
o He admitted that they had, in fact,
received the eight checks from the
respondents.
o However, two of these checks
(Landbank Check No. 0610947 and
FEBTC Check No. 17A0011551P)
amounting to P23,692.00 were
dishonored.
o He recalled that the remaining two checks
were not deposited anymore due to the
previous dishonor of the two checks.
o He said that after deducting these
payments, the total outstanding balance of
the obligation was P48,084.00, which
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 represented the last four monthly
installments.
MeTC: dismissed the case and granted spouses
counterclaim for damages
RTC: set aside the MeTC decision and ordered the
spouses to pay the amount claimed by BPI.
CA: set aside the RTC decision and reinstated the
MeTC decision.
BPI insists that the spouses did not
sufficiently prove the alleged payment.
o It avers that, under the law and existing
jurisprudence, delivery of checks does not
constitute payment.
o It points out that this principle stands
despite the fact that there was no notice of
dishonor of the two checks and the
demand to pay was made three years
after default.
On the other hand, the spouses postulate
that they have established payment of the
amount being claimed by BPI and, unless BPI
proves that the checks have been dishonored, they
should not be made liable to pay the obligation
again.
ISSUES + RULING:
Whether or not payment has be made by the spousesNO
Jimenez vs. NLRC:
o As a general rule, one who pleads
payment has the burden of proving it.
Even where the plaintiff must allege non-
payment, the general rule is that the
burden rests on the defendant to prove
payment, rather than on the plaintiff to
prove nonpayment. The debtor has the
burden of showing with legal certainty that
the obligation has been discharged by
payment.
o When the existence of a debt is fully
established by the evidence contained in
the record, the burden of proving that it
has been extinguished by payment
devolves upon the debtor who offers such
a defense to the claim of the creditor.
o Where the debtor introduces some
evidence of payment, the burden of going
forward with the evidenceas distinct
from the general burden of proofshifts to
the creditor, who is then under a duty of
producing some evidence to show non-
payment.
The RTC found that the spouses failed to discharge
this burden because they did not introduce
evidence of payment, considering that mere
delivery of checks does not constitute payment.
On the other hand, the CA concluded that the
spouses introduced sufficient evidence of payment,
as opposed to the BPI, which failed to produce
evidence that the checks were in fact dishonored.
o It noted that BPI could have easily
presented the dishonored checks or the
advice of dishonor and required
respondents to replace the dishonored
checks but none was presented.
o Further, the CA remarked that it is absurd
for a bank, such as BPI, to demand
payment of a failed amortization only after
three years from the due date.
The divergence in this conflict of opinions can be
narrowed down to the issue of whether the
Acknowledgment Receipt was sufficient proof of
payment.
As correctly observed by the RTC, this is only
proof that the spouses delivered eight
checks in payment of the amount due.
Apparently, this will not suffice to establish
actual payment.
Settled is the rule that payment must be
made in legal tender. A check is not legal
tender and, therefore, cannot constitute a
valid tender of payment.
o Since a negotiable instrument is only a
substitute for money and not money, the
delivery of such an instrument does not,
by itself, operate as payment.
o Mere delivery of checks does not
discharge the obligation under a
judgment.
o The obligation is not extinguished and
remains suspended until the payment by
commercial document is actually realized.
To establish their defense, the spouses therefore
had to present proof, not only that they delivered
the checks to the BPI, but also that the checks
were encashed. The spouses failed to do so.
o Had the checks been actually encashed,
the spouses could have easily produced
the cancelled checks as evidence to prove
the same.
Instead, they merely averred that they believed in
good faith that the checks were encashed because
they were not notified of the dishonor of the
checks and three years had already lapsed since
they issued the checks.
Because of this failure of the spouses to
present sufficient proof of payment, it was no
longer necessary for the petitioner to prove
nonpayment, particularly proof that the
checks were dishonored.
To stress, the obligation to prove that the checks
were not dishonored, but were in fact encashed,
fell upon the spouses who would benefit from such
fact.
If BPI were seeking to enforce liability upon the
check, the burden to prove that a notice of
dishonor was properly given would have devolved
upon it.
The fact is that the BPIs cause of action was
based on the original obligation as evidenced
by the Promissory Note and the Chattel
Mortgage, and not on the checks issued in
payment thereof.
Further, it should be noted that BPI, as
payee, did not have a legal obligation to
inform the spouses of the dishonor of the
checks.
A notice of dishonor is required only to preserve
the right of the payee to recover on the check. It
preserves the liability of the drawer and the
indorsers on the check.
Otherwise, if the payee fails to give notice to them,
they are discharged from their liability thereon,
and the payee is precluded from enforcing
payment on the check.
The spouses, therefore, cannot fault BPI for not
notifying them of the non payment of the checks
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 because whatever rights were transgressed by
such omission belonged only to BPI.
The BPIs possession of the documents pertaining
to the obligation strongly buttresses its claim that
the obligation has not been extinguished.
The creditors possession of the evidence of debt is
proof that the debt has not been discharged by
payment. A promissory note in the hands of the
creditor is a proof of indebtedness rather than
proof of payment. In an action for replevin by a
mortgagee, it is prima facie evidence that the
promissory note has not been paid.
Likewise, an uncanceled mortgage in the
possession of the mortgagee gives rise to the
presumption that the mortgage debt is unpaid.
Whether or not BPIs claim is barred by lachesNO
Laches is a recourse in equity. Equity, however, is
applied only in the absence, never
contravention, of statutory law.
Thus, laches cannot, as a rule, abate a collection
suit filed within the prescriptive period mandated
by the New Civil Code.
The petitioners action was filed within the tenyear
prescriptive period provided under Article 1144 of
the New Civil Code. Hence, there is no room for the
application of laches.
Nonetheless, the Court cannot ignore what the
respondents have consistently raisedthat they
were not notified of the nonpayment of the checks.
Reasonable banking practice and prudence
dictates that, when a check given to a
creditor bank in payment of an obligation is
dishonored, the bank should immediately
return it to the debtor and demand its
replacement or payment lest it causes any
prejudice to the drawer.
In light of this and the fact that the obligation has
been partially paid, we deem it just and equitable
to reduce the 3% per month penalty charge as
stipulated in the Promissory Note to 12% per
annum.
Although a court is not at liberty to ignore the
freedom of the parties to agree on such terms and
conditions as they see fit, as long as they
contravene no law, morals, good customs, public
order or public policy, a stipulated penalty,
nevertheless, may be equitably reduced by the
courts if it is iniquitous or unconscionable, or if the
principal obligation has been partly or irregularly
complied with.
DISPOSITION: Petition is partially granted. CA decision is
reversed and set aside. RTC decision is reinstated with
modification that the spouses are ordered to deliver the
possession of the subject vehicle, or in the alternative, pay
the petitioner P48,084.00 plus late penalty
charges/interest thereon at the rate of 12% per annum
from May 18, 1997 until fully paid.
FORTUNADO v CA
On April 28, 1982 the RTC of QC rendered judgment in
Civil Case Alfaro Fortunado v Angel Bautista ordering
Bautista to pay damages to Fortunado.
Pursuant to judgement, Basilisa Campano, City Sheriff
of Iligan, levied upon two parcels of land in the name of
Bautusta located in Iligan. (TCT T-7625 and T-14133)
o The latter lot was already been purchased by
National Steel Corporation (NSC) as of August
17, 1983 but had not yet been registered.
After due notice, these lots were sold at public auction
Fortunado as the only bidder.
o They were issued a certificate of sale which
was registered on April 25, 1984.
On January 10, 1985, NSC gave notice to the sheriff of
its intention to redeem the lot covered by TCT T-14133.
o Thus, NSC filed a motion in the trial court to
redeem both lots.
o This was opposed by Fortunato on the ground
that NSC did not have personality to intervene.
As the motion remained unresolved and the
period of redemption would expire on April 18,
in 1985, NSC issued to the sheriff on March 20,
1985, PNB Check No. 313551 in the amount of
P296,384.43 as the redemption price for the lot
covered by TCT No. T14133.
o The sheriff acknowledged receipt of the check
on the same date.
o On March 21, 1985, Bautista sent the sheriff a
letter bearing NSCs conformity in which he
availed himself of NSCs check, which was
sufficient to cover the full redemption price for
both lots, to redeem the other lot covered by
TCT No. T7625.
The letter stated that the redemption
is made solely for the purpose of
effecting the execution and delivery to
Bautista and the same shall not be
taken that he acknowledges that the
writ of execution and sale, both of
which he continues to protest, are
valid.
Thus, the sheriff issued a certificate of redemption in
favor of NSC and Bautista.
On March 25, 1985, Bautista wrote the sheriff that he
would no longer effect the redemption because there
was nothing to redeem, the auction sale being null and
void.
o Thus Bautista filed a motion praying that the
sum of Php 296, 384 covered by the PNB check
be delivered and kept by the RTC QC Clerk of
Court until the issue on the validity of the
auction sale be resolved.
On March 29, 1985, the sheriff wired the Fortunados
counsel, notifying him of the deposit of the PNB check.
o Fortunados counsel rejected the check saying
it was not legal tender, and that it was not
intended for payment but merely for deposit,
as Bautista said in his motion.
On April 25, 1985, the petitioner requested the sheriff
to issue a final deed of sale over the two lots and
deliver the same to them on the ground that no valid
redemption had been effected within the 12month
period from the registration of the sale.
o When the request was not granted, the
petitioners filed with the respondent court a
petition for mandamus.
Grounds of Fortunado for filling the petition:
1. That the check was not actually legal tender
and thus cannot be considered as payment of
the rendemption price.
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 a. That NSC and Bautusta failed to comply
with the ROC (Rule 39, Sec. 30) provision
on redemption.
b. Invoked CC 1249 which says that the
payment of debts in money shall be made
in the currency stipulated, and if it is not
possible to deliver such currency, then in
the currency which is legal tender in the
Philippines
2. That the tender was not valid because it was
conditional, given Bautistas letter to the sheriff.
3. That even granting the validity of the tender, it was
withdrawn by Bautista subsequently when he filed
his Motion to deposit money with the clerk of court.
4. That since there was no deliver to the creditor of
the redemption price, there was no payment (Art.
1233, CC)
CA: Denied mandamus petition, but granted injunction to
restrain registration of the certificate of redemption in favor
of NSC and Bautista.
The court said that Art. 1249 was not
applicable in cases of redemption, saying
that the right of redemption was, in fact, a
privilege and not an obligation.
On November 22, 1986, the petitioners moved for
partial reconsideration.
While their motion was pending, NSC filed a
Manifestation dated March 18, 1987, informing the
respondent court that the certificate of redemption
had already been registered and TCT No. T27154
had been issued in its favor on September 12,
1985.
CA denied the petitioners motion for
reconsideration.
Was the redemption validly effected by the private
respondents? YES
Defense of NSC and Bautista: Article 1249 is inapplicable as
it deals with a mode of extinction of debts. They rely on
Javellana v Mirasol which says that a redemption of
property sold under execution is not rendered invalid by
reason of the fact that the payment to the sheriff for the
purpose of redemption is effected by means of a check for
the amount due.
Fortunados allegation: In Belisario v Natividad, it was held
that even if the check had been good, the defendant was
not legally bound to accept it because such a check does
not satisfy the requirements of a legal tender.
HELD: Javellana v Mirasol applies.
Article 1249 is not applicable in this case.
o Being a privilege, if the redemptioners choose
to exercise their right of redemption, it is the
policy of the law to aid rather than to defeat
the right of redemption.
It stands to reason therefore, that
redemptions should be looked upon
with favor and where no injury is to
follow, a liberal construction will be
given to our redemption laws as well
as to the exercise of the right of
redemption.
The ends of justice would be better
served by affording the redemptioners
the opportunity to redeem the
properties in question
o the redemption is not rendered invalid by the
fact that the said officer accepted a check for
the amount necessary to make the redemption
instead of requiring payment in money.
It goes without saying that if he had
seen fit to do so, the officer could
have required payment to be made in
lawful money, and he undoubtedly, in
accepting a check, placed himself in a
position where he could be liable to
the purchaser at the public auction if
any damage had been suffered by the
latter as a result of the medium in
which payment was made.
In the United States, it has also been held and
recognized that a payment by check or draft or bank
bills or currency which is not legal tender is effective if
the officer accepts such payment.
o If in good faith the redemptioner pays, and the
officer receives before the expiration of the
time of redemption, an ordinary bankers
check, the payment is regarded as sufficient.
Court finds nothing wrong with Bautistas letter
reserving that the conformity to the redemption shall
not be taken to mean his acknowledgement of the
validity of the writ of execution and sale.
o If he had not so reserved, then estoppel might
have operated against him.
o There are issued in the reconveyance case that
are set apart from the question of the validity
of the auction sale, which is the subject of
inquiry in the Annulment suit.
These constitute two distinct and
separate actions.
Courts caveat: We are not, by this decision, sanctioning
the use of a check for the payment of obligations over the
objection of the creditor.
What we are saying is that a check may be used
for the exercise of the right of redemption, the
same being a right and not an obligation.
The tender of a check is sufficient to compel
redemption but is not in itself a payment that
relieves the redemptioner from his liability to
pay the redemption price.
In other words, while we hold that the private
respondents properly exercised their right or
redemption, they remain liable of course, for the
payment of the redemption price.
DISPOSITION: CA decision affirmed.
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