G.R. No.

93397 March 3, 1997 irrevocably authorized the said issuer (Central Bank) to transfer the said bond/certificates on the books
of its fiscal agent;
TRADERS ROYAL BANK, petitioner,

vs.
5. On February 4, 1981, petitioner entered into a Repurchase Agreement with PhilFinance . . .,
COURT OF APPEALS, FILRITERS GUARANTY ASSURANCE CORPORATION and whereby, for and in consideration of the sum of PESOS: FIVE HUNDRED THOUSAND
CENTRAL BANK of the PHILIPPINES, respondents. (P500,000.00), PhilFinance sold, transferred and delivered to petitioner CBCI 4-year, 8th series, Serial
No. D891 with a face value of P500,000.00 . . ., which CBCI was among those previously acquired by
PhilFinance from Filriters as averred in paragraph 3 of the Petition;

TORRES, JR., J.:

Assailed in this Petition for Review on Certiorari is the Decision of the respondent Court of Appeals
dated January 29, 1990,1 affirming the nullity of the transfer of Central Bank Certificate of
Indebtedness (CBCI) No. D891,2 with a face value of P500,000.00, from the Philippine Underwriters
Finance Corporation (Philfinance) to the petitioner Trader's Royal Bank (TRB), under a Repurchase
Agreement3 dated February 4, 1981, and a Detached Assignment4 dated April 27, 1981.
6. Pursuant to the aforesaid Repurchase Agreement (Annex "B"), Philfinance agreed to
repurchase CBCI Serial No. D891 (Annex "C"), at the stipulated price of PESOS: FIVE HUNDRED
NINETEEN THOUSAND THREE HUNDRED SIXTY-ONE & 11/100 (P519,361.11) on April 27,
1981;
7. PhilFinance failed to repurchase the CBCI on the agreed date of maturity, April 27, 1981,
when the checks it issued in favor of petitioner were dishonored for insufficient funds;

Docketed as Civil Case No. 83-17966 in the Regional Trial Court of Manila, Branch 32, the action was
originally filed as a Petition for Mandamus5 under Rule 65 of the Rules of Court, to compel the
Central Bank of the Philippines to register the transfer of the subject CBCI to petitioner Traders Royal
Bank (TRB).
In the said petition, TRB stated that:
8. Owing to the default of PhilFinance, it executed a Detached Assignment in favor of the
Petitioner to enable the latter to have its title completed and registered in the books of the respondent.
And by means of said Detachment, Philfinance transferred and assigned all, its rights and title in the
said CBCI (Annex "C") to petitioner and, furthermore, it did thereby "irrevocably authorize the said
issuer (respondent herein) to transfer the said bond/certificate on the books of its fiscal agent." . . .

9. Petitioner presented the CBCI (Annex "C"), together with the two (2) aforementioned
Detached Assignments (Annexes "B" and "D"), to the Securities Servicing Department of the
3. On November 27, 1979, Filriters Guaranty Assurance Corporation (Filriters) executed a
respondent, and requested the latter to effect the transfer of the CBCI on its books and to issue a new
"Detached Assignment" . . ., whereby Filriters, as registered owner, sold, transferred, assigned and
certificate in the name of petitioner as absolute owner thereof;
delivered unto Philippine Underwriters Finance Corporation (Philfinance) all its rights and title to
Central Bank Certificates of Indebtedness of PESOS: FIVE HUNDRED THOUSAND (P500,000) and
having an aggregate value of PESOS: THREE MILLION FIVE HUNDRED THOUSAND
(P3,500,000.00); 10. Respondent failed and refused to register the transfer as requested, and continues to do so
notwithstanding petitioner's valid and just title over the same and despite repeated demands in writing,
the latest of which is hereto attached as Annex "E" and made an integral part hereof;
4. The aforesaid Detached Assignment (Annex "A") contains an express authorization executed
by the transferor intended to complete the assignment through the registration of the transfer in the
name of PhilFinance, which authorization is specifically phrased as follows: '(Filriters) hereby 11. The express provisions governing the transfer of the CBCI were substantially complied with
the petitioner's request for registration, to wit:
 any board resolution, knowledge or consent of the board of directors of Filriters, and without any
clearance or authorization from the Insurance Commissioner, executed a detached assignment
"No transfer thereof shall be valid unless made at said office (where the Certificate has been registered) purportedly assigning CBCI No. 891 to Philfinance;
by the registered owner hereof, in person or by his attorney duly authorized in writing, and similarly
noted hereon, and upon payment of a nominal transfer fee which may be required, a new Certificate
shall be issued to the transferee of the registered holder thereof."
xxx xxx xxx

and, without a doubt, the Detached Assignments presented to respondent were sufficient authorizations
in writing executed by the registered owner, Filriters, and its transferee, PhilFinance, as required by the 14. Subsequently, Alberto Fabella, Senior Vice-President-Comptroller are Pilar Jacobe, Vice-
above-quoted provision; President-Treasury of Filriters (both of whom were holding the same positions in Philfinance), without
any consideration or benefit redounding to Filriters and to the grave prejudice of Filriters, its policy
holders and all who have present or future claims against its policies, executed similar detached
assignment forms transferring the CBCI to plaintiff;
12. Upon such compliance with the aforesaid requirements, the ministerial duties of registering a
transfer of ownership over the CBCI and issuing a new certificate to the transferee devolves upon the
respondent;
xxx xxx xxx

Upon these assertions, TRB prayed for the registration by the Central Bank of the subject CBCI in its
name. 15. The detached assignment is patently void and inoperative because the assignment is without
the knowledge and consent of directors of Filriters, and not duly authorized in writing by the Board, as
requiring by Article V, Section 3 of CB Circular No. 769;

On December 4, 1984, the Regional Trial Court the case took cognizance of the defendant Central
Bank of the Philippines' Motion for Admission of Amended Answer with Counter Claim for
Interpleader6 thereby calling to fore the respondent Filriters Guaranty Assurance Corporation 16. The assignment of the CBCI to Philfinance is a personal act of Alfredo Banaria and not the
(Filriters), the registered owner of the subject CBCI as respondent. corporate act of Filriters and such null and void;

For its part, Filriters interjected as Special Defenses the following: a) The assignment was executed without consideration and for that reason, the assignment is
void from the beginning (Article 1409, Civil Code);

11. Respondent is the registered owner of CBCI No. 891;

b) The assignment was executed without any knowledge and consent of the board of directors of
Filriters;

12. The CBCI constitutes part of the reserve investment against liabilities required of respondent
as an insurance company under the Insurance Code;
c) The CBCI constitutes reserve investment of Filriters against liabilities, which is a requirement
under the Insurance Code for its existence as an insurance company and the pursuit of its business
operations. The assignment of the CBCI is illegal act in the sense of malum in se or malum prohibitum,
13. Without any consideration or benefit whatsoever to Filriters, in violation of law and the trust for anyone to make, either as corporate or personal act;
fund doctrine and to the prejudice of policyholders and to all who have present or future claim against
policies issued by Filriters, Alfredo Banaria, then Senior Vice-President-Treasury of Filriters, without
d) The transfer of dimunition of reserve investments of Filriters is expressly prohibited by law, is c) The CBCI involved substantial amount and its assignment clearly constitutes disposition of
immoral and against public policy; "all or substantially all" of the assets of Filriters, which requires the affirmative action of the
stockholders (Section 40, Corporation [sic] Code.7

e) The assignment of the CBCI has resulted in the capital impairment and in the solvency
deficiency of Filriters (and has in fact helped in placing Filriters under conservatorship), an inevitable In its Decision8 dated April 29, 1988, the Regional Trial Court of Manila, Branch XXXIII found the
result known to the officer who executed assignment. assignment of CBCI No. D891 in favor of Philfinance, and the subsequent assignment of the same
CBCI by Philfinance in favor of Traders Royal Bank null and void and of no force and effect. The
dispositive portion of the decision reads:
17. Plaintiff had acted in bad faith and with knowledge of the illegality and invalidity of the
assignment.
ACCORDINGLY, judgment is hereby rendered in favor of the respondent Filriters Guaranty
Assurance Corporation and against the plaintiff Traders Royal Bank:
a) The CBCI No. 891 is not a negotiable instrument and as a certificate of indebtedness is not
payable to bearer but is a registered in the name of Filriters;
(a) Declaring the assignment of CBCI No. 891 in favor of PhilFinance, and the subsequent
assignment of CBCI by PhilFinance in favor of the plaintiff Traders Royal Bank as null and void and
b) The provision on transfer of the CBCIs provides that the Central Bank shall treat the of no force and effect;
registered owner as the absolute owner and that the value of the registered certificates shall be payable
only to the registered owner; a sufficient notice to plaintiff that the assignments do not give them the
registered owner's right as absolute owner of the CBCI's; (b) Ordering the respondent Central Bank of the Philippines to disregard the said assignment and
to pay the value of the proceeds of the CBCI No. D891 to the Filriters Guaranty Assurance
Corporation;
c) CB Circular 769, Series of 1980 (Rules and Regulations Governing CBCIs) provides that the
registered certificates are payable only to the registered owner (Article II, Section 1).
(c) Ordering the plaintiff Traders Royal Bank to pay respondent Filriters Guaranty Assurance
Corp. The sum of P10,000 as attorney's fees; and
18. Plaintiff knew full well that the assignment by Philfinance of CBCI No. 891 by Filriters is not
a regular transaction made in the usual of ordinary course of business;
(d) to pay the costs.

a) The CBCI constitutes part of the reserve investments of Filriters against liabilities requires by
the Insurance Code and its assignment or transfer is expressly prohibited by law. There was no attempt SO ORDERED.9
to get any clearance or authorization from the Insurance Commissioner;

The petitioner assailed the decision of the trial court in the Court of Appeals 10, but their appeals
b) The assignment by Filriters of the CBCI is clearly not a transaction in the usual or regular likewise failed. The findings of the fact of the said court are hereby reproduced:
course of its business;
The records reveal that defendant Filriters is the registered owner of CBCI No. D891. Under a deed of
assignment dated November 27, 1971, Filriters transferred CBCI No. D891 to Philippine Underwriters
Finance Corporation (Philfinance). Subsequently, Philfinance transferred CBCI No. D891, which was
still registered in the name of Filriters, to appellant Traders Royal Bank (TRB). The transfer was made
under a repurchase agreement dated February 4, 1981, granting Philfinance the right to repurchase the
instrument on or before April 27, 1981. When Philfinance failed to buy back the note on maturity date,
it executed a deed of assignment, dated April 27, 1981, conveying to appellant TRB all its right and the
title to CBCI No. D891.
Armed with the deed of assignment, TRB then sought the transfer and registration of CBCI No. D891
in its name before the Security and Servicing Department of the Central Bank (CB). Central Bank,
however, refused to effect the transfer and registration in view of an adverse claim filed by defendant
Filriters.
Left with no other recourse, TRB filed a special civil action for mandamus against the Central Bank in
the Regional Trial Court of Manila. The suit, however, was subsequently treated by the lower court as
a case of interpleader when CB prayed in its amended answer that Filriters be impleaded as a
respondent and the court adjudge which of them is entitled to the ownership of CBCI No. D891.
Failing to get a favorable judgment. TRB now comes to this Court on appeal. 11
In the appellate court, petitioner argued that the subject CBCI was a negotiable instrument, and having
acquired the said certificate from Philfinance as a holder in due course, its possession of the same is
thus free fro any defect of title of prior parties and from any defense available to prior parties among
themselves, and it may thus, enforce payment of the instrument for the full amount thereof against all
parties liable thereon. 12
In ignoring said argument, the appellate court that the CBCI is not a negotiable instrument, since the
instrument clearly stated that it was payable to Filriters, the registered owner, whose name was
inscribed thereon, and that the certificate lacked the words of negotiability which serve as an
expression of consent that the instrument may be transferred by negotiation.
Obviously, the assignment of the certificate from Filriters to Philfinance was fictitious, having made
without consideration, and did not conform to Central Bank Circular No. 769, series of 1980, better
known as the "Rules and Regulations Governing Central Bank Certificates of Indebtedness", which
provided that any "assignment of registered certificates shall not be valid unless made . . . by the
registered owner thereof in person or by his representative duly authorized in writing."
Petitioner's claimed interest has no basis, since it was derived from Philfinance whose interest was
inexistent, having acquired the certificate through simulation. What happened was Philfinance merely
borrowed CBCI No. D891 from Filriters, a sister corporation, to guarantee its financing operations.
Said the Court:
In the case at bar, Alfredo O. Banaria, who signed the deed of assignment purportedly for and on
behalf of Filriters, did not have the necessary written authorization from the Board of Directors of
Filriters to act for the latter. For lack of such authority, the assignment did not therefore bind Filriters
and violated as the same time Central Bank Circular No. 769 which has the force and effect of a law,
resulting in the nullity of the transfer (People v. Que Po Lay, 94 Phil. 640; 3M Philippines, Inc. vs.
Commissioner of Internal Revenue, 165 SCRA 778).
In sum, Philfinance acquired no title or rights under CBCI No. D891 which it could assign or transfer
to Traders Royal Bank and which the latter can register with the Central Bank.
WHEREFORE, the judgment appealed from is AFFIRMED, with costs against plaintiff-appellant.
SO ORDERED. 13
Petitioner's present position rests solely on the argument that Philfinance owns 90% of Filriters equity
and the two corporations have identical corporate officers, thus demanding the application of the
doctrine or piercing the veil of corporate fiction, as to give validity to the transfer of the CBCI from
registered owner to petitioner TRB. 14 This renders the payment by TRB to Philfinance of CBCI, as
actual payment to Filriters. Thus, there is no merit to the lower court's ruling that the transfer of the
CBCI from Filriters to Philfinance was null and void for lack of consideration.
Admittedly, the subject CBCI is not a negotiable instrument in the absence of words of negotiability
within the meaning of the negotiable instruments law (Act 2031).
The pertinent portions of the subject CBCI read:

xxx xxx xxx
The Central Bank of the Philippines (the Bank) for value received, hereby promises to pay bearer, of if
this Certificate of indebtedness be registered, to FILRITERS GUARANTY ASSURANCE
CORPORATION, the registered owner hereof, the principal sum of FIVE HUNDRED THOUSAND
PESOS.
xxx xxx xxx
Properly understood, a certificate of indebtedness pertains to certificates for the creation and
maintenance of a permanent improvement revolving fund, is similar to a "bond," (82 Minn. 202).
Being equivalent to a bond, it is properly understood as acknowledgment of an obligation to pay a
fixed sum of money. It is usually used for the purpose of long term loans.
The appellate court ruled that the subject CBCI is not a negotiable instrument, stating that:
As worded, the instrument provides a promise "to pay Filriters Guaranty Assurance Corporation, the
registered owner hereof." Very clearly, the instrument is payable only to Filriters, the registered owner,
whose name is inscribed thereon. It lacks the words of negotiability which should have served as an
expression of consent that the instrument may be transferred by negotiation.15
A reading of the subject CBCI indicates that the same is payable to FILRITERS GUARANTY
ASSURANCE CORPORATION, and to no one else, thus, discounting the petitioner's submission that
the same is a negotiable instrument, and that it is a holder in due course of the certificate.
The language of negotiability which characterize a negotiable paper as a credit instrument is its
freedom to circulate as a substitute for money. Hence, freedom of negotiability is the touchtone
relating to the protection of holders in due course, and the freedom of negotiability is the foundation
for the protection which the law throws around a holder in due course (11 Am. Jur. 2d, 32). This
freedom in negotiability is totally absent in a certificate indebtedness as it merely to pay a sum of
money to a specified person or entity for a period of time.
As held in Caltex (Philippines), Inc. v. Court of Appeals, 16:
The accepted rule is that the negotiability or non-negotiability of an instrument is determined from the
writing, that is, from the face of the instrument itself. In the construction of a bill or note, the intention
of the parties is to control, if it can be legally ascertained. While the writing may be read in the light of
surrounding circumstance in order to more perfectly understand the intent and meaning of the parties,
yet as they have constituted the writing to be the only outward and visible expression of their meaning,
no other words are to be added to it or substituted in its stead. The duty of the court in such case is to
ascertain, not what the parties may have secretly intended as contradistinguished from what their
words express, but what is the meaning of the words they have used. What the parties meant must be
determined by what they said.
Thus, the transfer of the instrument from Philfinance to TRB was merely an assignment, and is not
governed by the negotiable instruments law. The pertinent question then is, was the transfer of the
CBCI from Filriters to Philfinance and subsequently from Philfinance to TRB, in accord with existing
law, so as to entitle TRB to have the CBCI registered in its name with the Central Bank?
The following are the appellate court's pronouncements on the matter:
Clearly shown in the record is the fact that Philfinance's title over CBCI No. D891 is defective since it
acquired the instrument from Filriters fictitiously. Although the deed of assignment stated that the
transfer was for "value received", there was really no consideration involved. What happened was
Philfinance merely borrowed CBCI No. D891 from Filriters, a sister corporation. Thus, for lack of any
consideration, the assignment made is a complete nullity.
What is more, We find that the transfer made by Filriters to Philfinance did not conform to Central
Bank Circular No. 769, series of 1980, otherwise known as the "Rules and Regulations Governing
Central Bank Certificates of Indebtedness", under which the note was issued. Published in the Official
Gazette on November 19, 1980, Section 3 thereof provides that any assignment of registered
certificates shall not be valid unless made . . . by the registered owner thereof in person or by his
representative duly authorized in writing.
In the case at bar, Alfredo O. Banaria, who signed the deed of assignment purportedly for and on
behalf of Filriters, did not have the necessary written authorization from the Board of Directors of
Filriters to act for the latter. For lack of such authority, the assignment did not therefore bind Filriters
and violated at the same time Central Bank Circular No. 769 which has the force and effect of a law,
resulting in the nullity of the transfer (People vs. Que Po Lay, 94 Phil. 640; 3M Philippines, Inc. vs.
Commissioner of Internal Revenue, 165 SCRA 778).
In sum, Philfinance acquired no title or rights under CBCI No. D891 which it could assign or transfer
to Traders Royal Bank and which the latter can register with the Central Bank
Petitioner now argues that the transfer of the subject CBCI to TRB must upheld, as the respondent
Filriters and Philfinance, though separate corporate entities on paper, have used their corporate fiction
to defraud TRB into purchasing the subject CBCI, which purchase now is refused registration by the
Central Bank.
Says the petitioner;
Since Philfinance own about 90% of Filriters and the two companies have the same corporate officers,
if the principle of piercing the veil of corporate entity were to be applied in this case, then TRB's
payment to Philfinance for the CBCI purchased by it could just as well be considered a payment to
Filriters, the registered owner of the CBCI as to bar the latter from claiming, as it has, that it never
received any payment for that CBCI sold and that said CBCI was sold without its authority.
xxx xxx xxx
We respectfully submit that, considering that the Court of Appeals has held that the CBCI was merely
borrowed by Philfinance from Filriters, a sister corporation, to guarantee its (Philfinance's) financing
operations, if it were to be consistent therewith, on the issued raised by TRB that there was a piercing a
veil of corporate entity, the Court of Appeals should have ruled that such veil of corporate entity was,
in fact, pierced, and the payment by TRB to Philfinance should be construed as payment to Filriters. 17
We disagree with Petitioner.
Petitioner cannot put up the excuse of piercing the veil of corporate entity, as this merely an equitable
remedy, and may be awarded only in cases when the corporate fiction is used to defeat public
convenience, justify wrong, protect fraud or defend crime or where a corporation is a mere alter ego or
business conduit of a person. 18
Peiercing the veil of corporate entity requires the court to see through the protective shroud which
exempts its stockholders from liabilities that ordinarily, they could be subject to, or distinguished one
corporation from a seemingly separate one, were it not for the existing corporate fiction. But to do this,
the court must be sure that the corporate fiction was misused, to such an extent that injustice, fraud, or
crime was committed upon another, disregarding, thus, his, her, or its rights. It is the protection of the
interests of innocent third persons dealing with the corporate entity which the law aims to protect by
this doctrine.
The corporate separateness between Filriters and Philfinance remains, despite the petitioners insistence
on the contrary. For one, other than the allegation that Filriters is 90% owned by Philfinance, and the
identity of one shall be maintained as to the other, there is nothing else which could lead the court
under circumstance to disregard their corporate personalities.
Though it is true that when valid reasons exist, the legal fiction that a corporation is an entity with a
juridical personality separate from its stockholders and from other corporations may be disregarded, 19
in the absence of such grounds, the general rule must upheld. The fact that Filfinance owns majority
shares in Filriters is not by itself a ground to disregard the independent corporate status of Filriters. In
Liddel & Co., Inc. vs. Collector of Internal Revenue, 20 the mere ownership by a single stockholder or
by another corporation of all or nearly all of the capital stock of a corporation is not of itself a
sufficient reason for disregarding the fiction of separate corporate personalities.
In the case at bar, there is sufficient showing that the petitioner was not defrauded at all when it
acquired the subject certificate of indebtedness from Philfinance.
On its face the subject certificates states that it is registered in the name of Filriters. This should have
put the petitioner on notice, and prompted it to inquire from Filriters as to Philfinance's title over the
same or its authority to assign the certificate. As it is, there is no showing to the effect that petitioner
had any dealings whatsoever with Filriters, nor did it make inquiries as to the ownership of the
certificate.
The terms of the CBCI No. D891 contain a provision on its TRANSFER. Thus:
TRANSFER. This Certificate shall pass by delivery unless it is registered in the owner's name at any
office of the Bank or any agency duly authorized by the Bank, and such registration is noted hereon.
After such registration no transfer thereof shall be valid unless made at said office (where the
Certificates has been registered) by the registered owner hereof, in person, or by his attorney, duly
authorized in writing and similarly noted hereon and upon payment of a nominal transfer fee which
may be required, a new Certificate shall be issued to the transferee of the registered owner thereof. The
bank or any agency duly authorized by the Bank may deem and treat the bearer of this Certificate, or if
this Certificate is registered as herein authorized, the person in whose name the same is registered as
the absolute owner of this Certificate, for the purpose of receiving payment hereof, or on account
hereof, and for all other purpose whether or not this Certificate shall be overdue.
This is notice to petitioner to secure from Filriters a written authorization for the transfer or to require
Philfinance to submit such an authorization from Filriters.
Petitioner knew that Philfinance is not registered owner of the CBCI No. D891. The fact that a non-
owner was disposing of the registered CBCI owned by another entity was a good reason for petitioner
to verify of inquire as to the title Philfinance to dispose to the CBCI.
Moreover, CBCI No. D891 is governed by CB Circular No. 769, series of 1990 21, known as the Rules
and Regulations Governing Central Bank Certificates of Indebtedness, Section 3, Article V of which
provides that:
Sec. 3. Assignment of Registered Certificates. — Assignment of registered certificates shall not be
valid unless made at the office where the same have been issued and registered or at the Securities
Servicing Department, Central Bank of the Philippines, and by the registered owner thereof, in person
or by his representative, duly authorized in writing. For this purpose, the transferee may be designated
as the representative of the registered owner.
Petitioner, being a commercial bank, cannot feign ignorance of Central Bank Circular 769, and its
requirements. An entity which deals with corporate agents within circumstances showing that the
agents are acting in excess of corporate authority, may not hold the corporation liable. 22 This is only
fair, as everyone must, in the exercise of his rights and in the performance of his duties, act with
justice, give everyone his due, and observe honesty and good faith. 23
The transfer made by Filriters to Philfinance did not conform to the said. Central Bank Circular, which
for all intents, is considered part of the law. As found by the courts a quo, Alfredo O. Banaria, who had
signed the deed of assignment from Filriters to Philfinance, purportedly for and in favor of Filriters,
did not have the necessary written authorization from the Board of Directors of Filriters to act for the
latter. As it is, the sale from Filriters to Philfinance was fictitious, and therefore void and inexistent, as
there was no consideration for the same. This is fatal to the petitioner's cause, for then, Philfinance had
no title over the subject certificate to convey the Traders Royal Bank. Nemo potest nisi quod de jure
potest — no man can do anything except what he can do lawfully.
Concededly, the subject CBCI was acquired by Filriters to form part of its legal and capital reserves,
which are required by law 24 to be maintained at a mandated level. This was pointed out by Elias
Garcia, Manager-in-Charge of respondent Filriters, in his testimony given before the court on May 30,
1986.
Q Do you know this Central Bank Certificate of Indebtedness, in short, CBCI No. D891 in the
face value of P5000,000.00 subject of this case?
A Yes, sir.
Q Why do you know this?
A Well, this was CBCI of the company sought to be examined by the Insurance Commission
sometime in early 1981 and this CBCI No. 891 was among the CBCI's that were found to be missing.
Q Let me take you back further before 1981. Did you have the knowledge of this CBCI No. 891
before 1981?
A Yes, sir. This CBCI is an investment of Filriters required by the Insurance Commission as
legal reserve of the company.
Q Legal reserve for the purpose of what?
A Well, you see, the Insurance companies are required to put up legal reserves under Section G.R. No. L-35767 April 15, 1988
213 of the Insurance Code equivalent to 40 percent of the premiums receipt and further, the Insurance
Commission requires this reserve to be invested preferably in government securities or government RAYMUNDO A. CRYSTAL, petitioner,
binds. This is how this CBCI came to be purchased by the company. vs.

COURT OF APPEALS AND PELAGIA OCANG, PACITA, TEODULO, FELICISIMO

It cannot, therefore, be taken out of the said funds, without violating the requirements of the law. Thus, PABLO, LYDIA DIOSCORA and, RODRIGO, all surnamed DE GRACIA, respondents.
the anauthorized use or distribution of the same by a corporate officer of Filriters cannot bind the said
corporation, not without the approval of its Board of Directors, and the maintenance of the required
reserve fund. Gonzales B. Callantes for respondents.

Consequently, the title of Filriters over the subject certificate of indebtedness must be upheld over the
claimed interest of Traders Royal Bank.
PARAS, J.:

ACCORDINGLY, the petition is DISMISSED and the decision appealed from dated January 29, 1990
This is urgent motion for contempt and lifting of the temporary restraining order issued by tile Court
is hereby AFFIRMED.
on April 16, 1975 enjoining the private respondents from taking possession of the four parcels of land
under litigation in the petition for certiorari with preliminary injunction filed with the Court by
petitioner Crystal on November 3,1972.
SO ORDERED.

The antecedents of the case are quoted from the decision of the Court promulgated on February 25,
Regalado, Romero and Mendoza, JJ., concur. 1975, as follows:

Puno, J., took no part. In Civil Case No. R-1666, of the Court of First Instance of Cebu, entitled Pelagia Ocang, et al. vs.
Vidal Montayre, as administrator of the estate of Nicolas Rafols, judgment was rendered ordering the
defendant to pay the plaintiffs P 30,609.00 as damages. On appeal, this Court affirmed the decision of
the trial court. After the judgment had become final, a writ of execution was issued and five (5) parcels
of land belonging to the estate, situated at Toledo, Cebu, were on May 24, 1957 sold at public auction
to Pelagia Ocang as the highest bidder for P 10,000.00 (Annex A) On May 17, 1958, the heirs of
Nicolas Rafols assigned their rigth of redemption over four (4) of the five (5) parcels of land to
Raymundo Crystal (Annex 'B'), which assignment was approved by the probate court on May 23,
1958. By virtue of the order, Crystal deposited a check for P ll,200.00 with the Provincial Sheriff of
Cebu on Id date and on May 28, 1958, the Provincial Sheriff issued a deed of redemption (Annex B)
Crystal took possession of the lands and cultivated the same.
In February 1960, Ocang took in contempt of the four (4) parcels of land, claiming that since the check
for the redemption was dishonored for lack of sufficient finds, the redemption was null and void.
Crystal then filed a motion in Civil Case No. R-1666 seeking to cite Ocang in contempt of court.
On June 4, 1960, the trial court denied the motion to hold Ocang in contempt of court, observing that
another action, and not contempt proceedings, is the proper proceeding where the validity of the
redemption may be raised (Annex "D").
Following the observation of the trial court, Crystal filed Civil case No. 62-T agent Ocang seeking
declaration of ownership in his favor, plus damage.
During the pendency of Civil Case No. 62-T, however, Crystal was able to regain possession of the
four (4) parcels of land.
On June 23, 1969, the trial court in Civil Case No. R-1666 granted a writ of possession of the four (4)
parcels of land to Ocang (Annex "F")
Upon Crystal's motion, the trial court set aside the order of June 23, 1969 and annulled the writ of
possession issued in Ocang's favor.
Ocang then moved to recorder the order annulling the writ of possession, which motion was opposed
by Crystal, The trial court held abeyance the various incindents of the case.
Subsequently, Ocang filed an ex-parte motion for the issuance of an alias writ of possession and this
was reiterated on August 15, 1970.
On May 31, 1971, the court issued an order reviving the order for the issuance of a writ of possession
dated June 23, 1969 and declaring the definite deed of sale executed by the Provincial Sheriff of Cebu
and the writ of possession issued by the clerk of court on June 24, 1969 in full force and effect (Annex
"I").
Crystal moved to reconsider the order of May 31, 1971, which was, however, denied by the trial court
(Annex "K").
In view of the denial of his motion for reconsideration, petitioner filed with respondent Court of
Appeals a petition for certiorari with preliminary injunction, CA-G.R. No. S.P.-00506, seeking the
annulment and setting aside of the order of the Court of First Instance of Cebu in Civil Case No. R-
1666 dated May 31, 1971. Responding Court of Appeals, however, dismissed the petition and lifted the
preliminary injunction issued when the petition was filed (Rollo, 124). Hence, the petition for
certiorari, with. preliminary injunctions filed with this Court on November 3, 1972 (Rollo, p. 1).
On February 25, 1975 the Court rendered its decision * on the petition, affirming the appealed decision
of respondent Court of Appeals. The Court also ordered lifted the restraining order it had previously
issued in the case (Rollo, p. 250). It, however, resolved to grant on April 18, 1975 the urgent motion of
petitioner for extension of time to file a motion for reconsideration and issued a new temporary
restraining order effective on the same date (Rollo, p. 268).
On April 25, 1975 petitioner filed his motion for reconsideration (Rollo, P. 272). After the opposition
to the motion (Rollo, p. 380 reply to the opposition to the motion (Rollo, p. 408), and the rejoinder to
petitioner's reply (Rollo, p. 417) had been submitted, the Court decided through a Resolution dated
June 18, 1976, to reconsider and modify the decision promulgated on February 25, 1975 by remanding
the case to the trial court for other proceedings. The proceedings contemplated are to be held in Civil
Case No. R-1666, rendering academic Civil Case No. 62-T and another case reviewing the same, not
specifically Identified in the decision (Rollo, p. 434).
The decision as modified became final and executory on July 30, 1976 (Rollo, p. 446).
On February 23, 1979, exactly two years, six months and twenty-three days after the judgment had
became final and executory, private respondents filed their urgent motion for contempt and for lifting
the temporary restraining order (Rollo, p. 458). On June 3, 1986 one of the movants, Pablito Ocang de
Gracia, filed a motion for resolution of the urgent motion for contempt and for lifting of the temporary
restraining order (Rollo, p. 491). On July 14, 1986 the Court resolved to require the petitioner to
comment on the motion (Rollo, p. 494).
The comment of petitioner on the motion of respondent Pablito O. de Gracia asking the Court for a
resolution on their motion for contempt and to lift the temporary restraining order was filed on October
9,1986 (Rollo, p. 495). The reply of private respondent and movant Pablito O. de Gracia was filed on
January 23, 1987 (Rollo, p. 508); the rejoinder to the reply, on April 14, 1987 (Rollo, p. 518).
Private respondents impute the following acts to petitioner Private which according to them constitute
grievous contempt committed against the Court:
a) that petitioner Crystal deceitfully concealed from the Court the fact that Civil Case No. 62-T
had already been dismissed on September 19, 1974, a year prior to his filing a motion for
reconsideration of the decision of the Court promulgated on February 25, 1975; and
b) that petitioner falsified the temporary restraining order issued by the Court on April 16, 1975
by intercalating or imposing at the bottom of said temporary restraining order a small sketch map of
Cadastral Lot No. 4126, with intent to deceive and mislead the police that complied with it accordingly
depriving respondents of the possession and enjoyment of Lot No. 4126 which in the Cadastral Survey
of 1963 rightfully belongs to them (Rollo, p. 460-462).
The isue of dismissal of Civil case No. 62-T was first brought up by respondents in their opposition to
the motion for reconsideration filed by petitioner on April 25, 1975. The fact was admitted by
petitioner in his reply to the opposition to the motion for reconsideration wherein petitioner explained
that when he learned about the dismissal of the case, which was very much later he immediately
instructed his counsel to a motion for reconsideration or a petition for relief from judgment or order
with the trial court. The counsel, however, decided to refile the case instead since the dismissal of the
case was without prejudice (Rollo, p. 464) and the period for filing a petition for relief from judgment
or order had already expired (Rollo, p. 409). It appears that the case had been refiled on April 15,1975
as Civil Case No. 492-T (Rollo, p. 389). Respondents filed with the trial court a motion to dismiss the
case on May 5, 1975 (Rollo, p. 396). Thus when petitioner filed his motion for reconsideration the case
was indeed pending in the trial Court.
The Court granted petitioner's motion for reconsideration. In the light of the Court's ruling on the
motion that "since it was the trial Court in that Civil Case No. R-1666 that rendered the judgment and
subsequently ordered the execution from which the disputed redemption was made, it should be the
one to settle the whole controversy among all the interested parties, including even the judgment
debtors, the heirs of Nicolas Rafols themselves, who, according to the records, have claims of their
own relative to the same redemption, which might just as well be inquired into in said case, rather than
in Case No. 62-T in which they are not parties' it becomes irrelevant for the Court to delve further into
the issue as to whether or not Civil Case No. 62-T had been dismissed by the trial court prior to
petitioner's filing of his motion for reconsideration.
As to the second ground raised by private respondents in their urgent motion for contempt there is no
showing how at this point when Civil Case No. R-1666 had long became final and executory the
restraining order issued by the Court on April 16, 1975 could still prejudice private respondents even
with the alleged imposition at the bottom of the last page of the restraining order of a small sketch map
of Cadastral Lot No. 4126. Petitioner was in possession of the lots in litigation at the time the petition
for certiorari in G.R. No. L-35767 was filed. The Court then issued a restraining order to maintain the
status quo, that is, to restrain respondent Court of Appeals and private respondents from implementing
the decision of respondent Court dated September 13, 1972 affirming the order of the trial court in
Civil Case No. R-1666 reviving its previous order for the issuance of a writ of possession in favor of
private respondents. When this Court promulgated a decision in G.R. No. L-35767 on February 25,
1975 affirming the decision of respondent Court of Appeals, it ordered in the same decision the lifting
of the temporary restraining order. It was upon the urgent motion of petitioner, for extension of time to
file a motion for reconsideration that the Court again issued on April 16, 1975 the restraining Order
which private respondents would now want lifted. The Court had reconsidered its decision of February
25, 1976 and had the case remanded to the trial court to continue the proceedings for the settlement of
the whole controversy in Civil Case No. R-1666. The police force of Toledo City did not use the
restraining order to dispossess private respondents of Lot No. 4126. Petitioner remained in possession
of the lots in litigation since his filing of Civil Case No. 62-T in the Court of First Instance and
throughout the pendency of G.R. No. 35767 in the Court.
The trial court had already rendered a decision in Civil Case No. R-1666 on December 8, 1982, the
dispositive portion of which was quoted by petitioner in his comment on the motion of respondent
Pablito O. Gracia asking the Court for a resolution on their motion for contempt and to lift the
temporary restraining order (Rollo, p. 496), as follows:
In view of all the foregoing considerations, this Court hereby declares and so holds that respondents
Pelagia Ocang and her children have been fully paid the redemption price of the four (4) parcels of
land in dispute and therefore, the Deed of Redemption is hereby also declared valid and effective as of
the date it was executed. Accordingly, petitioner-redemptioner, Raymundo Crystal, Filipino, of legal
age, and married to Desamparados Crystal, is hereby declare owner of all the disputed parcels of land
described in the Deed of Redemption executed by the Provincial Sheriff of Cebu in his favor in Civil
Case No. 1666 which parcels are now known as Lot Nos. 3816, 4129, 4143, 4126 and 4127 of Toledo
City Cadastre all situated at Poog, Toledo City.
The claim of the intervenors, Roso Sabalones and Luis Sabalones, are rendered moot and academic
with the passing out of the right of Pelagia Ocang.-
The above-quoted dispositive portion of the decision shows that Lot No. 4126 is among the four lots
described in the Deed of Redemption executed by the Provincial Sheriff of Cebu in favor of petitioner.
Accordingly, the petitioner was declared owner of the four lots in the same decision.
The decision of the trial court in Civil Case No. R-1666 was appealed by Private respondents as AC-
G.R. CV NO. 3132 UDK and is still pending decision in the Court of Appeals (Rollo, p. 497).
G.R. No. L-35767 was terminated in this Court and became final and executory on July 30, 1976. The
case has been remanded to the trial court which had also rendered its decision on the controversy. The
Court no longer has jurisdiction in the case to resolve, by a mere motion therein, issues having to do
with the rights of parties to the case (National Investment and Development Corporation v. Angeles,
40 SCRA [1971]). When the case reaches the court again on appeal, then and only then will it regain
jurisdiction over the case. Under the circumstances, the following passage from the decision in Lim
Kim Tho v. Go Sin Kaw is applicable:
Litigation must end and terminate sometime and somewhere and it is essential to an effective and
efficient administration of justice that once a judgment has become final, the winning party be not,
through a mere subterfuge, deprived of the fruits of the verdict. Courts must therefore guard against
any scheme calculated to bring about that result. Constituted as they are to put an end to controversies,
courts should frown upon any attempt to prolong them. (82 Phil. 776, cited in Phil. Blooming Mills
Employees Co. v. Blooming Mills Co., v. 51 SCRA 189 [1973]).
PREMISES CONSIDERED, the motion is DISMISSED for having become moot and academic.
SO ORDERED.
Yap (Chairman), Melencio-Herrera, Padilla and Sarmiento concur.
G.R. No. 89252 May 24, 1993
RAUL SESBREÑO, petitioner,
vs.
HON. COURT OF APPEALS, DELTA MOTORS CORPORATION AND PILIPINAS BANK,
respondents.
Salva, Villanueva & Associates for Delta Motors Corporation.
Reyes, Salazar & Associates for Pilipinas Bank.
FELICIANO, J.:
On 9 February 1981, petitioner Raul Sesbreño made a money market placement in the amount of
P300,000.00 with the Philippine Underwriters Finance Corporation ("Philfinance"), Cebu Branch; the
placement, with a term of thirty-two (32) days, would mature on 13 March 1981, Philfinance, also on 9
February 1981, issued the following documents to petitioner:
(a) the Certificate of Confirmation of Sale, "without recourse," No. 20496 of one (1) Delta
Motors Corporation Promissory Note ("DMC PN") No. 2731 for a term of 32 days at 17.0% per
annum;
(b) the Certificate of securities Delivery Receipt No. 16587 indicating the sale of DMC PN No.
2731 to petitioner, with the notation that the said security was in custodianship of Pilipinas Bank, as
per Denominated Custodian Receipt ("DCR") No. 10805 dated 9 February 1981; and
(c) post-dated checks payable on 13 March 1981 (i.e., the maturity date of petitioner's
investment), with petitioner as payee, Philfinance as drawer, and Insular Bank of Asia and America as
drawee, in the total amount of P304,533.33.
On 13 March 1981, petitioner sought to encash the postdated checks issued by Philfinance. However,
the checks were dishonored for having been drawn against insufficient funds.
On 26 March 1981, Philfinance delivered to petitioner the DCR No. 10805 issued by private
respondent Pilipinas Bank ("Pilipinas"). It reads as follows:
On 2 April 1981, petitioner approached Ms. Elizabeth de Villa of private respondent Pilipinas, Makati
Branch, and handed her a demand letter informing the bank that his placement with Philfinance in the
amount reflected in the DCR No. 10805 had remained unpaid and outstanding, and that he in effect
was asking for the physical delivery of the underlying promissory note. Petitioner then examined the
original of the DMC PN No. 2731 and found: that the security had been issued on 10 April 1980; that
it would mature on 6 April 1981; that it had a face value of P2,300,833.33, with the Philfinance as
"payee" and private respondent Delta Motors Corporation ("Delta") as "maker;" and that on face of the
promissory note was stamped "NON NEGOTIABLE." Pilipinas did not deliver the Note, nor any
certificate of participation in respect thereof, to petitioner.
Petitioner later made similar demand letters, dated 3 July 1981 and 3 August 1981,2 again asking
private respondent Pilipinas for physical delivery of the original of DMC PN No. 2731. Pilipinas
allegedly referred all of petitioner's demand letters to Philfinance for written instructions, as has been
supposedly agreed upon in "Securities Custodianship Agreement" between Pilipinas and Philfinance.
Philfinance did not provide the appropriate instructions; Pilipinas never released DMC PN No. 2731,
nor any other instrument in respect thereof, to petitioner.
Petitioner also made a written demand on 14 July 19813 upon private respondent Delta for the partial
satisfaction of DMC PN No. 2731, explaining that Philfinance, as payee thereof, had assigned to him
said Note to the extent of P307,933.33. Delta, however, denied any liability to petitioner on the
promissory note, and explained in turn that it had previously agreed with Philfinance to offset its DMC
PN No. 2731 (along with DMC PN No. 2730) against Philfinance PN No. 143-A issued in favor of
Delta.
In the meantime, Philfinance, on 18 June 1981, was placed under the joint management of the
Securities and exchange commission ("SEC") and the Central Bank. Pilipinas delivered to the SEC
DMC PN No. 2731, which to date apparently remains in the custody of the SEC.4
As petitioner had failed to collect his investment and interest thereon, he filed on 28 September 1982
an action for damages with the Regional Trial Court ("RTC") of Cebu City, Branch 21, against private
respondents Delta and Pilipinas.5 The trial court, in a decision dated 5 August 1987, dismissed the
complaint and counterclaims for lack of merit and for lack of cause of action, with costs against
petitioner.
Petitioner appealed to respondent Court of Appeals in C.A.-G.R. CV No. 15195. In a Decision dated
21 March 1989, the Court of Appeals denied the appeal and held:6
Be that as it may, from the evidence on record, if there is anyone that appears liable for the travails of
plaintiff-appellant, it is Philfinance. As correctly observed by the trial court:
This act of Philfinance in accepting the investment of plaintiff and charging it against DMC PN No.
2731 when its entire face value was already obligated or earmarked for set-off or compensation is
difficult to comprehend and may have been motivated with bad faith. Philfinance, therefore, is solely
and legally obligated to return the investment of plaintiff, together with its earnings, and to answer all
the damages plaintiff has suffered incident thereto. Unfortunately for plaintiff, Philfinance was not
impleaded as one of the defendants in this case at bar; hence, this Court is without jurisdiction to
pronounce judgement against it. (p. 11, Decision)
WHEREFORE, finding no reversible error in the decision appealed from, the same is hereby affirmed
in toto. Cost against plaintiff-appellant.
Petitioner moved for reconsideration of the above Decision, without success.
Hence, this Petition for Review on Certiorari.
After consideration of the allegations contained and issues raised in the pleadings, the Court resolved
to give due course to the petition and required the parties to file their respective memoranda.7
Petitioner reiterates the assignment of errors he directed at the trial court decision, and contends that
respondent court of Appeals gravely erred: (i) in concluding that he cannot recover from private
respondent Delta his assigned portion of DMC PN No. 2731; (ii) in failing to hold private respondent
Pilipinas solidarily liable on the DMC PN No. 2731 in view of the provisions stipulated in DCR No.
10805 issued in favor r of petitioner, and (iii) in refusing to pierce the veil of corporate entity between
Philfinance, and private respondents Delta and Pilipinas, considering that the three (3) entities belong
to the "Silverio Group of Companies" under the leadership of Mr. Ricardo Silverio, Sr.8
There are at least two (2) sets of relationships which we need to address: firstly, the relationship of
petitioner vis-a-vis Delta; secondly, the relationship of petitioner in respect of Pilipinas. Actually, of
course, there is a third relationship that is of critical importance: the relationship of petitioner and
Philfinance. However, since Philfinance has not been impleaded in this case, neither the trial court nor
the Court of Appeals acquired jurisdiction over the person of Philfinance. It is, consequently, not
necessary for present purposes to deal with this third relationship, except to the extent it necessarily
impinges upon or intersects the first and second relationships.
I.
We consider first the relationship between petitioner and Delta.
The Court of appeals in effect held that petitioner acquired no rights vis-a-vis Delta in respect of the
Delta promissory note (DMC PN No. 2731) which Philfinance sold "without recourse" to petitioner, to
the extent of P304,533.33. The Court of Appeals said on this point:
Nor could plaintiff-appellant have acquired any right over DMC PN No. 2731 as the same is "non-
negotiable" as stamped on its face (Exhibit "6"), negotiation being defined as the transfer of an
instrument from one person to another so as to constitute the transferee the holder of the instrument
(Sec. 30, Negotiable Instruments Law). A person not a holder cannot sue on the instrument in his own
name and cannot demand or receive payment (Section 51, id.)9
Petitioner admits that DMC PN No. 2731 was non-negotiable but contends that the Note had been
validly transferred, in part to him by assignment and that as a result of such transfer, Delta as debtor-
maker of the Note, was obligated to pay petitioner the portion of that Note assigned to him by the
payee Philfinance.
Delta, however, disputes petitioner's contention and argues:
(1) that DMC PN No. 2731 was not intended to be negotiated or otherwise transferred by
Philfinance as manifested by the word "non-negotiable" stamp across the face of the Note10 and
because maker Delta and payee Philfinance intended that this Note would be offset against the
outstanding obligation of Philfinance represented by Philfinance PN No. 143-A issued to Delta as
payee;
(2) that the assignment of DMC PN No. 2731 by Philfinance was without Delta's consent, if not
against its instructions; and
(3) assuming (arguendo only) that the partial assignment in favor of petitioner was valid,
petitioner took the Note subject to the defenses available to Delta, in particular, the offsetting of DMC
PN No. 2731 against Philfinance PN No. 143-A.11
We consider Delta's arguments seriatim.
Firstly, it is important to bear in mind that the negotiation of a negotiable instrument must be
distinguished from the assignment or transfer of an instrument whether that be negotiable or non-
negotiable. Only an instrument qualifying as a negotiable instrument under the relevant statute may be
negotiated either by indorsement thereof coupled with delivery, or by delivery alone where the
negotiable instrument is in bearer form. A negotiable instrument may, however, instead of being
negotiated, also be assigned or transferred. The legal consequences of negotiation as distinguished
from assignment of a negotiable instrument are, of course, different. A non-negotiable instrument may,
obviously, not be negotiated; but it may be assigned or transferred, absent an express prohibition
against assignment or transfer written in the face of the instrument:
The words "not negotiable," stamped on the face of the bill of lading, did not destroy its assignability,
but the sole effect was to exempt the bill from the statutory provisions relative thereto, and a bill,
though not negotiable, may be transferred by assignment; the assignee taking subject to the equities
between the original parties.12 (Emphasis added)
DMC PN No. 2731, while marked "non-negotiable," was not at the same time stamped "non-
transferable" or "non-assignable." It contained no stipulation which prohibited Philfinance from
assigning or transferring, in whole or in part, that Note.
Delta adduced the "Letter of Agreement" which it had entered into with Philfinance and which should
be quoted in full:
We find nothing in his "Letter of Agreement" which can be reasonably construed as a prohibition upon
Philfinance assigning or transferring all or part of DMC PN No. 2731, before the maturity thereof. It is
scarcely necessary to add that, even had this "Letter of Agreement" set forth an explicit prohibition of
transfer upon Philfinance, such a prohibition cannot be invoked against an assignee or transferee of the
Note who parted with valuable consideration in good faith and without notice of such prohibition. It is
not disputed that petitioner was such an assignee or transferee. Our conclusion on this point is
reinforced by the fact that what Philfinance and Delta were doing by their exchange of their
promissory notes was this: Delta invested, by making a money market placement with Philfinance,
approximately P4,600,000.00 on 10 April 1980; but promptly, on the same day, borrowed back the
bulk of that placement, i.e., P4,000,000.00, by issuing its two (2) promissory notes: DMC PN No. 2730
and DMC PN No. 2731, both also dated 10 April 1980. Thus, Philfinance was left with not
P4,600,000.00 but only P600,000.00 in cash and the two (2) Delta promissory notes.
Apropos Delta's complaint that the partial assignment by Philfinance of DMC PN No. 2731 had been
effected without the consent of Delta, we note that such consent was not necessary for the validity and
enforceability of the assignment in favor of petitioner.14 Delta's argument that Philfinance's sale or
assignment of part of its rights to DMC PN No. 2731 constituted conventional subrogation, which
required its (Delta's) consent, is quite mistaken. Conventional subrogation, which in the first place is
never lightly inferred,15 must be clearly established by the unequivocal terms of the substituting
obligation or by the evident incompatibility of the new and old obligations on every point.16 Nothing
of the sort is present in the instant case.
It is in fact difficult to be impressed with Delta's complaint, since it released its DMC PN No. 2731 to
Philfinance, an entity engaged in the business of buying and selling debt instruments and other
securities, and more generally, in money market transactions. In Perez v. Court of Appeals,17 the
Court, speaking through Mme. Justice Herrera, made the following important statement:
There is another aspect to this case. What is involved here is a money market transaction. As defined
by Lawrence Smith "the money market is a market dealing in standardized short-term credit
instruments (involving large amounts) where lenders and borrowers do not deal directly with each
other but through a middle manor a dealer in the open market." It involves "commercial papers" which
are instruments "evidencing indebtness of any person or entity. . ., which are issued, endorsed, sold or
transferred or in any manner conveyed to another person or entity, with or without recourse". The
fundamental function of the money market device in its operation is to match and bring together in a
most impersonal manner both the "fund users" and the "fund suppliers." The money market is an
"impersonal market", free from personal considerations. "The market mechanism is intended to
provide quick mobility of money and securities."
The impersonal character of the money market device overlooks the individuals or entities concerned.
The issuer of a commercial paper in the money market necessarily knows in advance that it would be
expenditiously transacted and transferred to any investor/lender without need of notice to said issuer.
In practice, no notification is given to the borrower or issuer of commercial paper of the sale or transfer
to the investor.
xxx xxx xxx
There is need to individuate a money market transaction, a relatively novel institution in the Philippine
commercial scene. It has been intended to facilitate the flow and acquisition of capital on an
impersonal basis. And as specifically required by Presidential Decree No. 678, the investing public
must be given adequate and effective protection in availing of the credit of a borrower in the
commercial paper market.18 (Citations omitted; emphasis supplied)
We turn to Delta's arguments concerning alleged compensation or offsetting between DMC PN No.
2731 and Philfinance PN No. 143-A. It is important to note that at the time Philfinance sold part of its
rights under DMC PN No. 2731 to petitioner on 9 February 1981, no compensation had as yet taken
place and indeed none could have taken place. The essential requirements of compensation are listed in
the Civil Code as follows:
Art. 1279. In order that compensation may be proper, it is necessary:
(1) That each one of the obligors be bound principally, and that he be at the same time a principal
creditor of the other;
(2) That both debts consists in a sum of money, or if the things due are consumable, they be of
the same kind, and also of the same quality if the latter has been stated;
(3) That the two debts are due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy, commenced by third persons
and communicated in due time to the debtor. (Emphasis supplied)
On 9 February 1981, neither DMC PN No. 2731 nor Philfinance PN No. 143-A was due. This was
explicitly recognized by Delta in its 10 April 1980 "Letter of Agreement" with Philfinance, where
Delta acknowledged that the relevant promissory notes were "to be offsetted (sic) against [Philfinance]
PN No. 143-A upon co-terminal maturity."
As noted, the assignment to petitioner was made on 9 February 1981 or from forty-nine (49) days
before the "co-terminal maturity" date, that is to say, before any compensation had taken place.
Further, the assignment to petitioner would have prevented compensation had taken place between
Philfinance and Delta, to the extent of P304,533.33, because upon execution of the assignment in favor
of petitioner, Philfinance and Delta would have ceased to be creditors and debtors of each other in their
own right to the extent of the amount assigned by Philfinance to petitioner. Thus, we conclude that the
assignment effected by Philfinance in favor of petitioner was a valid one and that petitioner
accordingly became owner of DMC PN No. 2731 to the extent of the portion thereof assigned to him.
The record shows, however, that petitioner notified Delta of the fact of the assignment to him only on
14 July 1981, 19 that is, after the maturity not only of the money market placement made by petitioner
but also of both DMC PN No. 2731 and Philfinance PN No. 143-A. In other words, petitioner notified
Delta of his rights as assignee after compensation had taken place by operation of law because the
offsetting instruments had both reached maturity. It is a firmly settled doctrine that the rights of an
assignee are not any greater that the rights of the assignor, since the assignee is merely substituted in
the place of the assignor 20 and that the assignee acquires his rights subject to the equities — i.e., the
defenses — which the debtor could have set up against the original assignor before notice of the
assignment was given to the debtor. Article 1285 of the Civil Code provides that:
Art. 1285. The debtor who has consented to the assignment of rights made by a creditor in favor
of a third person, cannot set up against the assignee the compensation which would pertain to him
against the assignor, unless the assignor was notified by the debtor at the time he gave his consent, that
he reserved his right to the compensation.
If the creditor communicated the cession to him but the debtor did not consent thereto, the latter may
set up the compensation of debts previous to the cession, but not of subsequent ones.

If the assignment is made without the knowledge of the debtor, he may set up the compensation of all
credits prior to the same and also later ones until he had knowledge of the assignment. (Emphasis
supplied)
Article 1626 of the same code states that: "the debtor who, before having knowledge of the assignment,
pays his creditor shall be released from the obligation." In Sison v. Yap-Tico,21 the Court explained
that:
[n]o man is bound to remain a debtor; he may pay to him with whom he contacted to pay; and if he pay
before notice that his debt has been assigned, the law holds him exonerated, for the reason that it is the
duty of the person who has acquired a title by transfer to demand payment of the debt, to give his debt
or notice.22
At the time that Delta was first put to notice of the assignment in petitioner's favor on 14 July 1981,
DMC PN No. 2731 had already been discharged by compensation. Since the assignor Philfinance
could not have then compelled payment anew by Delta of DMC PN No. 2731, petitioner, as assignee
of Philfinance, is similarly disabled from collecting from Delta the portion of the Note assigned to him.
It bears some emphasis that petitioner could have notified Delta of the assignment or sale was effected
on 9 February 1981. He could have notified Delta as soon as his money market placement matured on
13 March 1981 without payment thereof being made by Philfinance; at that time, compensation had yet
to set in and discharge DMC PN No. 2731. Again petitioner could have notified Delta on 26 March
1981 when petitioner received from Philfinance the Denominated Custodianship Receipt ("DCR") No.
10805 issued by private respondent Pilipinas in favor of petitioner. Petitioner could, in fine, have
notified Delta at any time before the maturity date of DMC PN No. 2731. Because petitioner failed to
do so, and because the record is bare of any indication that Philfinance had itself notified Delta of the
assignment to petitioner, the Court is compelled to uphold the defense of compensation raised by
private respondent Delta. Of course, Philfinance remains liable to petitioner under the terms of the
assignment made by Philfinance to petitioner.
II.
We turn now to the relationship between petitioner and private respondent Pilipinas. Petitioner
contends that Pilipinas became solidarily liable with Philfinance and Delta when Pilipinas issued DCR
No. 10805 with the following words:
Upon your written instruction, we [Pilipinas] shall undertake physical delivery of the above securities
fully assigned to you —.23
The Court is not persuaded. We find nothing in the DCR that establishes an obligation on the part of
Pilipinas to pay petitioner the amount of P307,933.33 nor any assumption of liability in solidum with
Philfinance and Delta under DMC PN No. 2731. We read the DCR as a confirmation on the part of
Pilipinas that:
(1) it has in its custody, as duly constituted custodian bank, DMC PN No. 2731 of a certain face
value, to mature on 6 April 1981 and payable to the order of Philfinance;
(2) Pilipinas was, from and after said date of the assignment by Philfinance to petitioner (9
February 1981), holding that Note on behalf and for the benefit of petitioner, at least to the extent it
had been assigned to petitioner by payee Philfinance;24
(3) petitioner may inspect the Note either "personally or by authorized representative", at any
time during regular bank hours; and
(4) upon written instructions of petitioner, Pilipinas would physically deliver the DMC PN No.
2731 (or a participation therein to the extent of P307,933.33) "should this Denominated Custodianship
receipt remain outstanding in [petitioner's] favor thirty (30) days after its maturity."
Thus, we find nothing written in printers ink on the DCR which could reasonably be read as converting
Pilipinas into an obligor under the terms of DMC PN No. 2731 assigned to petitioner, either upon
maturity thereof or any other time. We note that both in his complaint and in his testimony before the
trial court, petitioner referred merely to the obligation of private respondent Pilipinas to effect the
physical delivery to him of DMC PN No. 2731.25 Accordingly, petitioner's theory that Pilipinas had
assumed a solidary obligation to pay the amount represented by a portion of the Note assigned to him
by Philfinance, appears to be a new theory constructed only after the trial court had ruled against him.
The solidary liability that petitioner seeks to impute Pilipinas cannot, however, be lightly inferred.
Under article 1207 of the Civil Code, "there is a solidary liability only when the law or the nature of
the obligation requires solidarity," The record here exhibits no express assumption of solidary liability
vis-a-vis petitioner, on the part of Pilipinas. Petitioner has not pointed to us to any law which imposed
such liability upon Pilipinas nor has petitioner argued that the very nature of the custodianship
assumed by private respondent Pilipinas necessarily implies solidary liability under the securities,
custody of which was taken by Pilipinas. Accordingly, we are unable to hold Pilipinas solidarily liable
with Philfinance and private respondent Delta under DMC PN No. 2731.
We do not, however, mean to suggest that Pilipinas has no responsibility and liability in respect of
petitioner under the terms of the DCR. To the contrary, we find, after prolonged analysis and
deliberation, that private respondent Pilipinas had breached its undertaking under the DCR to petitioner
Sesbreño.
We believe and so hold that a contract of deposit was constituted by the act of Philfinance in
designating Pilipinas as custodian or depositary bank. The depositor was initially Philfinance; the
obligation of the depository was owed, however, to petitioner Sesbreño as beneficiary of the
custodianship or depository agreement. We do not consider that this is a simple case of a stipulation
pour autri. The custodianship or depositary agreement was established as an integral part of the money
market transaction entered into by petitioner with Philfinance. Petitioner bought a portion of DMC PN
No. 2731; Philfinance as assignor-vendor deposited that Note with Pilipinas in order that the thing sold
would be placed outside the control of the vendor. Indeed, the constituting of the depositary or
custodianship agreement was equivalent to constructive delivery of the Note (to the extent it had been
sold or assigned to petitioner) to petitioner. It will be seen that custodianship agreements are designed
to facilitate transactions in the money market by providing a basis for confidence on the part of the
investors or placers that the instruments bought by them are effectively taken out of the pocket, as it
were, of the vendors and placed safely beyond their reach, that those instruments will be there
available to the placers of funds should they have need of them. The depositary in a contract of deposit
is obliged to return the security or the thing deposited upon demand of the depositor (or, in the
presented case, of the beneficiary) of the contract, even though a term for such return may have been
established in the said contract.26 Accordingly, any stipulation in the contract of deposit or
custodianship that runs counter to the fundamental purpose of that agreement or which was not brought
to the notice of and accepted by the placer-beneficiary, cannot be enforced as against such beneficiary-
placer.
We believe that the position taken above is supported by considerations of public policy. If there is any
party that needs the equalizing protection of the law in money market transactions, it is the members of
the general public whom place their savings in such market for the purpose of generating interest
revenues.27 The custodian bank, if it is not related either in terms of equity ownership or management
control to the borrower of the funds, or the commercial paper dealer, is normally a preferred or
traditional banker of such borrower or dealer (here, Philfinance). The custodian bank would have every
incentive to protect the interest of its client the borrower or dealer as against the placer of funds. The
providers of such funds must be safeguarded from the impact of stipulations privately made between
the borrowers or dealers and the custodian banks, and disclosed to fund-providers only after trouble
has erupted.
In the case at bar, the custodian-depositary bank Pilipinas refused to deliver the security deposited with
it when petitioner first demanded physical delivery thereof on 2 April 1981. We must again note, in
this connection, that on 2 April 1981, DMC PN No. 2731 had not yet matured and therefore,
compensation or offsetting against Philfinance PN No. 143-A had not yet taken place. Instead of
complying with the demand of the petitioner, Pilipinas purported to require and await the instructions
of Philfinance, in obvious contravention of its undertaking under the DCR to effect physical delivery
of the Note upon receipt of "written instructions" from petitioner Sesbreño. The ostensible term written
into the DCR (i.e., "should this [DCR] remain outstanding in your favor thirty [30] days after its
maturity") was not a defense against petitioner's demand for physical surrender of the Note on at least
three grounds: firstly, such term was never brought to the attention of petitioner Sesbreño at the time
the money market placement with Philfinance was made; secondly, such term runs counter to the very
purpose of the custodianship or depositary agreement as an integral part of a money market
transaction; and thirdly, it is inconsistent with the provisions of Article 1988 of the Civil Code noted
above. Indeed, in principle, petitioner became entitled to demand physical delivery of the Note held by
Pilipinas as soon as petitioner's money market placement matured on 13 March 1981 without payment
from Philfinance.
We conclude, therefore, that private respondent Pilipinas must respond to petitioner for damages
sustained by arising out of its breach of duty. By failing to deliver the Note to the petitioner as
depositor-beneficiary of the thing deposited, Pilipinas effectively and unlawfully deprived petitioner of
the Note deposited with it. Whether or not Pilipinas itself benefitted from such conversion or unlawful
deprivation inflicted upon petitioner, is of no moment for present purposes. Prima facie, the damages
suffered by petitioner consisted of P304,533.33, the portion of the DMC PN No. 2731 assigned to
petitioner but lost by him by reason of discharge of the Note by compensation, plus legal interest of six
percent (6%) per annum containing from 14 March 1981.
The conclusion we have reached is, of course, without prejudice to such right of reimbursement as
Pilipinas may have vis-a-vis Philfinance.
III.
The third principal contention of petitioner — that Philfinance and private respondents Delta and
Pilipinas should be treated as one corporate entity — need not detain us for long.
In the first place, as already noted, jurisdiction over the person of Philfinance was never acquired either
by the trial court nor by the respondent Court of Appeals. Petitioner similarly did not seek to implead
Philfinance in the Petition before us.
Secondly, it is not disputed that Philfinance and private respondents Delta and Pilipinas have been
organized as separate corporate entities. Petitioner asks us to pierce their separate corporate entities,
but has been able only to cite the presence of a common Director — Mr. Ricardo Silverio, Sr., sitting
on the Board of Directors of all three (3) companies. Petitioner has neither alleged nor proved that one
or another of the three (3) concededly related companies used the other two (2) as mere alter egos or
that the corporate affairs of the other two (2) were administered and managed for the benefit of one.
There is simply not enough evidence of record to justify disregarding the separate corporate
personalities of delta and Pilipinas and to hold them liable for any assumed or undetermined liability of
Philfinance to petitioner.28
WHEREFORE, for all the foregoing, the Decision and Resolution of the Court of Appeals in C.A.-
G.R. CV No. 15195 dated 21 march 1989 and 17 July 1989, respectively, are hereby MODIFIED and
SET ASIDE, to the extent that such Decision and Resolution had dismissed petitioner's complaint
against Pilipinas Bank. Private respondent Pilipinas bank is hereby ORDERED to indemnify petitioner
for damages in the amount of P304,533.33, plus legal interest thereon at the rate of six percent (6%)
per annum counted from 2 April 1981. As so modified, the Decision and Resolution of the Court of
Appeals are hereby AFFIRMED. No pronouncement as to costs.
SO ORDERED.
Bidin, Davide, Jr., Romero and Melo, JJ., concur.
[G.R. No. 72110. November 16, 1990.]
ROMAN CATHOLIC BISHOP OF MALOLOS, INC., Petitioner, v. INTERMEDIATE
APPELLATE COURT, and ROBES-FRANCISCO REALTY AND DEVELOPMENT
CORPORATION, Respondents.
Rodrigo Law Office for Petitioner.
Antonio P. Barredo and Napoleon M. Malinas for Private Respondent.
SYLLABUS
1. CIVIL LAW; CONTRACTS; TENDER OF PAYMENT; CANNOT BE PRESUMED BY
MERE INFERENCE FROM SURROUNDING CIRCUMSTANCES. — We agree with the petitioner
that a finding that the private respondent had sufficient available funds on or before the grace period
for the payment of its obligation does not constitute proof of tender of payment by the latter for its
obligation within the said period. Tender of payment involves a positive and unconditional act by the
obligor of offering legal tender currency as payment to the obligee for the former’s obligation and
demanding that the latter accept the same. Thus, tender of payment cannot be presumed by a mere
inference from surrounding circumstances. At most, sufficiency of available funds is only affirmative
of the capacity or ability of the obligor to fulfill his part of the bargain. But whether or not the obligor
avails himself of such funds to settle his outstanding account remains to be proven by independent and
credible evidence. Tender of payment presupposes not only that the obligor is able, ready, and willing,
but more so, in the act of performing his obligation. Ab posse ad actu non vale illatio. "A proof that an
act could have been done is no proof that it was actually done." The respondent court was therefore in
error to have concluded from the sheer proof of sufficient available funds on the part of the private
respondent to meet more than the total obligation within the grace period, the alleged truth of tender of
payment. The same is a classic case of non-sequitur.
2. ID.; ID.; ID.; NOT VALIDLY CONSTITUTED BY PAYMENT OF A CERTIFIED
PERSONAL CHECK. — With regard to the third issue, granting arguendo that we would rule
affirmatively on the two preceding issues, the case of the private respondent still can not succeed in
view of the fact that the latter used a certified personal check which is not legal tender nor the currency
stipulated, and therefore, can not constitute valid tender of payment. The first paragraph of Art. 1249
of the Civil Code 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 Court en banc in the recent case of Philippine Airlines v. Court of Appeals,
(Promulgated on January 30, 1990) G.R. No. L-49188, stated thus: 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 (citing Sec. 189, Act 2031 on Negs. Insts.; Art. 1249, Civil Code; Bryan London
Co. v. American Bank, 7 Phil. 255; Tan Sunco v. Santos, 9 Phil. 44; 21 R.C.L. 60, 61). 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. Hence,
where the tender of payment by the private respondent was not valid for failure to comply with the
requisite payment in legal tender or currency stipulated within the grace period and as such, was
validly refused receipt by the petitioner, the subsequent consignation did not operate to discharge the
former from its obligation to the latter.
3. ID.; ID.; OBLIGATIONS ARISING THEREFROM HAVE THE FORCE OF LAW
BETWEEN THE CONTRACTING PARTIES. — Art. 1159 of the Civil Code of the Philippines
provides that "obligations arising from contracts have the force of law between the contracting parties
and should be complied with in good faith." And unless the stipulations in said contract are contrary to
law, morals, good customs, public order, or public policy, the same are binding as between the parties.
(Article 1409, Civil Code, par. 1). What the private respondent should have done if it was indeed
desirous of complying with its obligations would have been to pay the petitioner within the grace
period and obtain a receipt of such payment duly issued by the latter. Thereafter, or, allowing a
reasonable time, the private respondent could have demanded from the petitioner the execution of the
necessary documents. In case the petitioner refused, the private respondent could have had always
resorted to judicial action for the legitimate enforcement of its right. For the failure of the private
respondent to undertake this more judicious course of action, it alone shall suffer the consequences.
4. REMEDIAL LAW; APPEAL; FACTUAL FINDINGS OF TRIAL COURT AS A RULE,
SHOULD BE ACCORDED FULL CONSIDERATION AND RESPECT. — On the contrary, the
respondent court finds itself remiss in overlooking or taking lightly the more important findings of fact
made by the trial court which we have earlier mentioned and which as a rule, are entitled to great
weight on appeal and should be accorded full consideration and respect and should not be disturbed
unless for strong and cogent reasons. (Natividad del Rosario Vda. de Alberto v. Court of Appeals, G.R.
29759, May 18, 1989; Matabuena v. Court of Appeals, G.R. 76542, May 5, 1989).
5. ID.; SUPREME COURT; INSTANCES WHEN THE COURT HAS TO REVIEW THE
EVIDENCE. — While the Court is not a trier of facts, yet, when the findings of fact of the Court of
Appeals are at variance with those of the trial court, (Robleza v. Court of Appeals, G.R. 80364, June
28, 1989) or when the inference of the Court of Appeals from its findings of fact is manifestly
mistaken, (Reynolds Philippine Corporation v. Court of Appeals, G.R. 38187, January 17, 1987) the
Court has to review the evidence in order to arrive at the correct findings based on the record.
DECISION
SARMIENTO, J.:
This is a petition for review on certiorari which seeks the reversal and setting aside of the decision 1 of
the Court of Appeals, 2 the dispositive portion of which reads:chanrobles law library : red
WHEREFORE, the decision appealed from is hereby reversed and set aside and another one entered
for the plaintiff ordering the defendant-appellee Roman Catholic Bishop of Malolos, Inc. to accept the
balance of P124,000.00 being paid by plaintiff-appellant and thereafter to execute in favor of Robes-
Francisco Realty Corporation a registerable Deed of Absolute Sale over 20,655 square meters portion
of that parcel of land situated in San Jose del Monte, Bulacan described in OCT No. 575 (now Transfer
Certificates of Title Nos. T-169493, 169494,169495 and 169496) of the Register of Deeds of Bulacan.
In case of refusal of the defendant to execute the Deed of Final Sale, the clerk of court is directed to
execute the said document. Without pronouncement as to damages and attorney’s fees. Costs against
the defendant-appellee. 3
The case at bar arose from a complaint filed by the private respondent, then plaintiff, against the
petitioner, then defendant, in the Court of First Instance (now Regional Trial Court) of Bulacan, at Sta.
Maria, Bulacan, 4 for specific performance with damages, based on a contract 5 executed on July 7,
1971.
The property subject matter of the contract consists of a 20,655 sq.m.-portion, out of the 30,655 sq.m.
total area, of a parcel of land covered by Original Certificate of Title No. 575 of the Province of
Bulacan, issued and registered in the name of the petitioner which it sold to the private respondent for
and in consideration of P123,930.00.chanrobles virtual lawlibrary
The crux of the instant controversy lies in the compliance or non-compliance by the private respondent
with the provision for payment to the petitioner of the principal balance of P100,000.00 and the
accrued interest of P24,000.00 within the grace period.
A chronological narration of the antecedent facts is as follows:chanrob1es virtual 1aw library
On July 7, 1971, the subject contract over the land in question was executed between the petitioner as
vendor and the private respondent through its then president, Mr. Carlos F. Robes, as vendee,
stipulating for a downpayment of P23,930.00 and the balance of P100,000.00 plus 12% interest per
annum to be paid within four (4) years from execution of the contract, that is, on or before July 7,
1975. The contract likewise provides for cancellation, forfeiture of previous payments, and
reconveyance of the land in question in case the private respondent would fail to complete payment
within the said period.
On March 12, 1973, the private respondent, through its new president, Atty. Adalia Francisco,
addressed a letter 6 to Father Vasquez, parish priest of San Jose Del Monte, Bulacan, requesting to be
furnished with a copy of the subject contract and the supporting documents.
On July 17, 1975, admittedly after the expiration of the stipulated period for payment, the same Atty.
Francisco wrote the petitioner a formal request 7 that her company be allowed to pay the principal
amount of P100,000.00 in three (3) equal installments of six (6) months each with the first installment
and the accrued interest of P24,000.00 to be paid immediately upon approval of the said request.
On July 29, 1975, the petitioner, through its counsel, Atty. Carmelo Fernandez, formally denied the
said request of the private respondent, but granted the latter a grace period of five (5) days from the
receipt of the denial 8 to pay the total balance of P124,000.00, otherwise, the provisions of the contract
regarding cancellation, forfeiture, and reconveyance would be implemented.
On August 4, 1975, the private respondent, through its president, Atty. Francisco, wrote 9 the counsel
of the petitioner requesting an extension of 30 days from said date to fully settle its account. The
counsel for the petitioner, Atty. Fernandez, received the said letter on the same day. Upon consultation
with the petitioner in Malolos, Bulacan, Atty. Fernandez, as instructed, wrote the private respondent a
letter 10 dated August 7, 1975 informing the latter of the denial of the request for an extension of the
grace period.
Consequently, Atty. Francisco, the private respondent’s president, wrote a letter 11 dated August 22,
1975, directly addressed to the petitioner, protesting the alleged refusal of the latter to accept tender of
payment purportedly made by the former on August 5, 1975, the last day of the grace period. In the
same letter of August 22, 1975, received on the following day by the petitioner, the private respondent
demanded the execution of a deed of absolute sale over the land in question and after which it would
pay its account in full, otherwise, judicial action would be resorted to.chanrobles.com.ph : virtual law
library
On August 27, 1975, the petitioner’s counsel, Atty. Fernandez, wrote a reply 12 to the private
respondent stating the refusal of his client to execute the deed of absolute sale due to its (private
respondent’s) failure to pay its full obligation. Moreover, the petitioner denied that the private
respondent had made any tender of payment whatsoever within the grace period. In view of this
alleged breach of contract, the petitioner cancelled the contract and considered all previous payments
forfeited and the land as ipso facto reconveyed.
From a perusal of the foregoing facts, we find that both the contending parties have conflicting
versions on the main question of tender of payment.
The trial court, in its ratiocination, preferred not to give credence to the evidence presented by the
private Respondent. According to the trial court:chanrob1es virtual 1aw library
. . . What made Atty. Francisco suddenly decide to pay plaintiff’s obligation on August 5, 1975, go to
defendant’s office at Malolos, and there tender her payment, when her request of August 4, 1975 had
not yet been acted upon until August 7, 1975? If Atty. Francisco had decided to pay the obligation and
had available funds for the purpose on August 5, 1975, then there would have been no need for her to
write defendant on August 4, 1975 to request an extension of time. Indeed, Atty. Francisco’s claim that
she made a tender of payment on August 5, 1975 — such alleged act, considered in relation to the
circumstances both antecedent and subsequent thereto, being not in accord with the normal pattern of
human conduct — is not worthy of credence. 13
The trial court likewise noted the inconsistency in the testimony of Atty. Francisco, president of the
private respondent, who earlier testified that a certain Mila Policarpio accompanied her on August 5,
1975 to the office of the petitioner. Another person, however, named Aurora Oracion, was presented to
testify as the secretary-companion of Atty. Francisco on that same occasion.
Furthermore, the trial court considered as fatal the failure of Atty. Francisco to present in court the
certified personal check allegedly tendered as payment or, at least, its xerox copy, or even bank records
thereof. Finally, the trial court found that the private respondent had insufficient funds available to
fulfill the entire obligation considering that the latter, through its president, Atty. Francisco, only had a
savings account deposit of P64,840.00, and although the latter had a money-market placement of
P300,000.00, the same was to mature only after the expiration of the 5-day grace period.
Based on the above considerations, the trial court rendered a decision in favor of the petitioner, the
dispositive portion of which reads:chanrobles virtual lawlibrary
WHEREFORE, finding plaintiff to have failed to make out its case, the court hereby declares the
subject contract cancelled and plaintiff’s downpayment of P23,930.00 forfeited in favor of defendant,
and hereby dismisses the complaint; and on the counterclaim, the Court orders plaintiff to pay
defendant.
(1) Attorney’s fees of P10,000.00;
(2) Litigation expenses of P2,000.00; and
(3) Judicial costs.
SO ORDERED. 14
Not satisfied with the said decision, the private respondent appealed to the respondent Intermediate
Appellate Court (now Court of Appeals) assigning as reversible errors, among others, the findings of
the trial court that the available funds of the private respondent were insufficient and that the latter did
not effect a valid tender of payment and consignation.
The respondent court, in reversing the decision of the trial court, essentially relies on the following
findings:chanrob1es virtual 1aw library
. . . We are convinced from the testimony of Atty. Adalia Francisco and her witnesses that in behalf of
the plaintiff-appellant they have a total available sum of P364,840.00 at her and at the plaintiff’s
disposal on or before August 4, 1975 to answer for the obligation of the plaintiff-appellant. It was not
correct for the trial court to conclude that the plaintiff-appellant had only about P64,840.00 in savings
deposit on or before August 5, 1975, a sum not enough to pay the outstanding account of P124,000.00.
The plaintiff-appellant, through Atty. Francisco proved and the trial court even acknowledged that
Atty. Adalia Francisco had about P300,000.00 in money market placement. The error of the trial court
has in concluding that the money market placement of P300,000.00 was out of reach of Atty.
Francisco. But as testified to by Mr. Catalino Estrella, a representative of the Insular Bank of Asia and
America, Atty. Francisco could withdraw anytime her money market placement and place it at her
disposal, thus proving her financial capability of meeting more than the whole of P124,000.00 then due
per contract. This situation, We believe, proves the truth that Atty. Francisco apprehensive that her
request for a 30-day grace period would be denied, she tendered payment on August 4, 1975 which
offer defendant through its representative and counsel refused to receive. . .15 (Emphasis supplied)
In other words, the respondent court, finding that the private respondent had sufficient available funds,
ipso facto concluded that the latter had tendered payment. Is such conclusion warranted by the facts
proven? The petitioner submits that it is not.cralawnad
Hence, this petition. 16
The petitioner presents the following issues for resolution:chanrob1es virtual 1aw library
x x x
A. Is a finding that private respondent had sufficient available funds on or before the grace
period for the payment of its obligation proof that it (private respondent) did tender of (sic) payment
for its said obligation within said period?
x x x
B. Is it the legal obligation of the petitioner (as vendor) to execute a deed of absolute sale in
favor of the private respondent (as vendee) before the latter has actually paid the complete
consideration of the sale — where the contract between and executed by the parties stipulates —
 While the Court is not a trier of facts, yet, when the findings of fact of the Court of Appeals are at
variance with those of the trial court, 19 or when the inference of the Court of Appeals from its
"That upon complete payment of the agreed consideration by the herein VENDEE, the VENDOR shall findings of fact is manifestly mistaken, 20 the Court has to review the evidence in order to arrive at the
cause the execution of a Deed of Absolute Sale in favor of the VENDEE."cralaw virtua1aw library correct findings based on the record.

x x x. Apropos the second issue raised, although admittedly the documents for the deed of absolute sale had
not been prepared, the subject contract clearly provides that the full payment by the private respondent
is an a priori condition for the execution of the said documents by the petitioner.
C. Is an offer of a check a valid tender of payment of an obligation under a contract which
stipulates that the consideration of the sale is in Philippine Currency? 17
That upon complete payment of the agreed consideration by the herein VENDEE, the VENDOR shall
cause the execution of a Deed of Absolute Sale in favor of the VENDEE. 21
We find the petition impressed with merit.

The private respondent is therefore in estoppel to claim otherwise as the latter did in the testimony in
With respect to the first issue, we agree with the petitioner that a finding that the private respondent cross-examination of its president, Atty. Francisco, which reads:chanrob1es virtual 1aw library
had sufficient available funds on or before the grace period for the payment of its obligation does not
constitute proof of tender of payment by the latter for its obligation within the said period. Tender of
payment involves a positive and unconditional act by the obligor of offering legal tender currency as Q Now, you mentioned, Atty. Francisco, that you wanted the defendant to execute the final deed
payment to the obligee for the former’s obligation and demanding that the latter accept the same. Thus, of sale before you would given (sic) the personal certified check in payment of your balance, is that
tender of payment cannot be presumed by a mere inference from surrounding circumstances. At most, correct?
sufficiency of available funds is only affirmative of the capacity or ability of the obligor to fulfill his
part of the bargain. But whether or not the obligor avails himself of such funds to settle his outstanding
account remains to be proven by independent and credible evidence. Tender of payment presupposes
not only that the obligor is able, ready, and willing, but more so, in the act of performing his A Yes, sir. 22
obligation. Ab posse ad actu non vale illatio. "A proof that an act could have been done is no proof that
it was actually done."cralaw virtua1aw library
x x x

The respondent court was therefore in error to have concluded from the sheer proof of sufficient
available funds on the part of the private respondent to meet more than the total obligation within the
grace period, the alleged truth of tender of payment. The same is a classic case of non-
Art. 1159 of the Civil Code of the Philippines provides that "obligations arising from contracts have
sequitur.chanrobles virtual lawlibrary
the force of law between the contracting parties and should be complied with in good faith." And
unless the stipulations in said contract are contrary to law, morals, good customs, public order, or
public policy, the same are binding as between the parties.23
On the contrary, the respondent court finds itself remiss in overlooking or taking lightly the more
important findings of fact made by the trial court which we have earlier mentioned and which as a rule,
are entitled to great weight on appeal and should be accorded full consideration and respect and should
What the private respondent should have done if it was indeed desirous of complying with its
not be disturbed unless for strong and cogent reasons. 18
obligations would have been to pay the petitioner within the grace period and obtain a receipt of such
payment duly issued by the latter. Thereafter, or, allowing a reasonable time, the private respondent
could have demanded from the petitioner the execution of the necessary documents. In case the
petitioner refused, the private respondent could have had always resorted to judicial action for the
legitimate enforcement of its right. For the failure of the private respondent to undertake this more SO ORDERED.
judicious course of action, it alone shall suffer the consequences.chanrobles.com:cralaw:red

Melencio-Herrera, Paras and Regalado, JJ., concur.

With regard to the third issue, granting arguendo that we would rule affirmatively on the two preceding Padilla, J., took no part.
issues, the case of the private respondent still can not succeed in view of the fact that the latter used a
certified personal check which is not legal tender nor the currency stipulated, and therefore, can not
constitute valid tender of payment. The first paragraph of Art. 1249 of the Civil Code 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. G.R. No. 120639 September 25, 1998

BPI EXPRESS CARD CORPORATION, petitioner,

The Court en banc in the recent case of Philippine Airlines v. Court of Appeals, 24 G.R. No. L-49188, vs.
stated thus:chanrob1es virtual 1aw library
COURT OF APPEALS and RICARDO J. MARASIGAN, respondents.

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 (citing Sec. 189, Act 2031 on Negs. Insts.; Art.
1249, Civil Code; Bryan London Co. v. American Bank, 7 Phil. 255; Tan Sunco v. Santos, 9 Phil. 44;
KAPUNAN, J.:
21 R.C.L. 60, 61). 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.
The question before this Court is whether private respondent can recover moral damages arising from
the cancellation of his credit card by petitioner credit card corporation.
Hence, where the tender of payment by the private respondent was not valid for failure to comply with
the requisite payment in legal tender or currency stipulated within the grace period and as such, was
validly refused receipt by the petitioner, the subsequent consignation did not operate to discharge the The facts of the case are as stated in the decision of the respondent court, 1 to wit:
former from its obligation to the latter.

The case arose from the dishonor of the credit card of the plaintiff Atty. Ricardo J. Marasigan by Café
In view of the foregoing, the petitioner in the legitimate exercise of its rights pursuant to the subject Adriatico, a business establishment accredited with the defendant-appellate BPI Express Card
contract, did validly order therefore the cancellation of the said contract, the forfeiture of the previous Corporation (BECC for brevity), on December 8, 1989 when the plaintiff entertained some guests
payment, and the reconveyance ipso facto of the land in question.chanrobles lawlibrary : rednad thereat.

WHEREFORE, the petition for review on certiorari is GRANTED and the DECISION of the
respondent court promulgated on April 25, 1985 is hereby SET ASIDE and ANNULLED and the
DECISION of the trial court dated May 25, 1981 is hereby REINSTATED. Costs against the private
Respondent.
The records of this case show that plaintiff, who is a lawyer by profession, was a complimentary
member of BECC from February 1988 to February 1989 and was issued Credit Card No. 100-012-
5534 with a credit limit of P3,000.00 and with a monthly billing every 27th of the month (Exh. N),
subject to the terms and conditions stipulated in the contract (Exh. 1-b). His membership was renewed
for another year or until February 1990 and the credit limit was increased to P5,000.00 (Exh. A). The
plaintiffs oftentimes exceeded his credit limits (Exhs. I, I-1 to I-12) but this was never taken against account, including stipulated fees and charges, within 5 days from receipt thereof or face court action
him by the defendant and even his mode of paying his monthly bills in check was tolerated. Their and also to replace the postdated check with cash within the same period or face criminal suit for
contractual relations went on smoothly until his statement of account for October 1989 amounting to violation of Bouncing Check Law (Exh. G/Exh. 13). The plaintiff in a reply letter dated April 5, 1990
P8,987.84 was not paid in due time. The plaintiff admitted having inadvertently failed to pay his (Exh. H), demanded defendant's compliance with his request in his first letter dated March 12, 1990
account for the said month because he was in Quezon province attending to some professional and within three (3) days from receipt, otherwise the plaintiff will file a case against them, . . . .2
personal commitments. He was informed by his secretary that defendant was demanding immediate
payment of his outstanding account, was requiring him to issue a check for P15,000.00 which would
include his future bills, and was threatening to suspend his credit card. Plaintiff issued Far East Bank Thus, on May 7, 1990 private respondent filed a complaint for damages against petitioner before the
and Trust Co. Check No. 494675 in the amount of P15,000.00, postdated December 15, 1989 which Regional Trial Court of Makati, Branch 150, docketed as Civil Case No. 90-1174.
was received on November 23, 1989 by Tess Lorenzo, an employee of the defendant (Exhs. J and J-1),
who in turn gave the said check to Jeng Angeles, a co-employee who handles the account of the
plaintiff. The check remained in the custody of Jeng Angeles. Mr. Roberto Maniquiz, head of the
After trial the trial court ruled for private respondent, finding that herein petitioner abused its right in
collection department of defendant was formally informed of the postdated check about a week later.
contravention of Article 19 of the Civil Code. 3 The dispositive portion of the decision reads:
On November 28, 2989, defendant served plaintiff a letter by ordinary mail informing him of the
temporary suspension of the privileges of his credit card and the inclusion of his account number in
their Caution List. He was also told to refrain from further use of his credit card to avoid any
inconvenience/embarrassment and that unless he settles his outstanding account with the defendant Wherefore, judgment is hereby rendered ordering the defendant to pay plaintiff the following:
within 5 days from receipt of the letter, his membership will be permanently cancelled (Exh. 3). There
is no showing that the plaintiff received this letter before December 8, 1989. Confidential that he had
settled his account with the issuance of the postdated check, plaintiff invited some guests on December 1. P 100,000.00 as moral damages;
8, 1989 and entertained them at Café Adriatico. When he presented his credit card to Café Adriatico
for the bill amounting to P735.32, said card was dishonored. One of his guests, Mary Ellen Ringler,
paid the bill by using her own credit card a Unibankard (Exhs. M, M-1 and M-2).
2. P 50,000.00 as exemplary damages; and

In a letter addressed to the defendant dated December 12, 1989, plaintiff requested that he be sent the
3. P 20,000.00 by way of attorney's fees.
exact billing due him as of December 15, 1989, to withhold the deposit of his postdated check and that
said check be returned to him because he had already instructed his bank to stop the payment thereof as
the defendant violated their agreement that the plaintiff issue the check to the defendant to cover his
account amounting to only P8,987.84 on the condition that the defendant will not suspend the On the other hand, plaintiff is ordered to pay defendant its outstanding obligation in the amount of
effectivity of the card (Exh. D). A letter dated December 16, 1989 was sent by the plaintiff to the P14,439.41, amount due as of December 15, 1989.4
manager of FEBTC, Ramada Branch, Manila requesting the bank to stop the payment of the check
(Exhs. E, E-1). No reply was received by plaintiff from the defendant to his letter dated December 12,
1989. Plaintiff sent defendant another letter dated March 12, 1990 reminding the latter that he had long The trial court's ruling was based on its findings and conclusions, to wit:
rescinded and cancelled whatever arrangement he entered into with defendant and requesting for his
correct billing, less the improper charges and penalties, and for an explanation within five (5) days
from receipt thereof why his card was dishonored on December 8, 1989 despite assurance to the There is no question that plaintiff had been in default in the payment of his billings for more than two
contrary by defendant's personnel-in-charge, otherwise the necessary court action shall be filed to hold months, prompting defendant to call him and reminded him of his obligation. Unable to personally talk
defendant responsible for the humiliation and embarrassment suffered by him (Exh. F). Plaintiff with him, this Court is convinced that somehow one or another employee of defendant called him up
alleged further that after a few days, a certain Atty. Albano, representing himself to be working with more that once.
the office of Atty. Lopez, called him inquiring as to how the matter can be threshed out extrajudicially
but the latter said that such is a serious matter cannot be discussed over the phone. The defendant
served its final demand to the plaintiff dated March 21, 1990 requiring him to pay in full his overdue
However, while it is true that as indicated in the terms and conditions of the application for BPI credit 3. Defendant's main witness, Mr. Maniquiz, categorically stated that the request for plaintiff to
card upon failure of the cardholder to pay his outstanding obligation for more that thirty (30) days, the replace his postdated check with a cash was merely for the purpose of tallying plaintiff's outstanding
defendant can automatically suspend or cancel the credit card, that reserved right should not have been obligation with his payment and not to question the postdated check;
abused as it was in fact abused, in plaintiff's case. What is more peculiar here is that there have been
admitted communications between plaintiff and defendant prior to the suspension or cancellation of
plaintiff's credit card and his inclusion in the cautions list. However, nowhere in any of these 4. That the card was suspended almost a week after receipt of the postdated check;
communications was there ever a hint given to plaintiff that his card had already been suspended or
cancelled. In fact, the Court observed that while defendant was trying its best to persuade plaintiff to
update its account and pay its obligation, it had already taken steps to suspend/cancel plaintiff's card
5. That despite the many instances that defendant could have informed plaintiff over the phone
and include him in the caution list. While the Court admires defendant's diplomacy in dealing with its
of the cancellation or suspension of his credit card, it did not do so, which could have prevented the
clients, it cannot help but frown upon the backhanded way defendant deal with plaintiff's case. For
incident of December 8, 1989, the notice allegedly sent thru ordinary mail is not only unreliable but
despite Tess Lorenzo's denial, there is reason to believe that plaintiff was indeed assured by defendant
takes a long time. Such action as suspension of credit card must be immediately relayed to the person
of the continued honoring of his credit card so long as he pays his obligation of P15,000.00. Worst,
affected so as to avoid embarrassing situations.
upon receipt of the postdated check, defendant kept the same until a few days before it became due and
said check was presented to the head of the collection department, Mr. Maniquiz, to take steps thereon,
resulting to the embarrassing situations plaintiff found himself in on December 8, 1989. Moreover, Mr.
Maniquiz himself admitted that his request for plaintiff to replace the check with cash was not because 6. And that the postdated check was deposited on December 20, 1989.
it was a postdated check but merely to tally the payment with the account due.

Likewise, the Court is not persuaded by the sweeping denials made by Tess Lorenzo and her claim that
her only participation was to receive the subject check. Her immediate superior, Mr. Maniquiz testified
that he had instructed Lorenzo to communicate with plaintiff once or twice to request the latter to
replace the questioned check with cash, thus giving support to the testimony of plaintiff's witness,
Dolores Quizon, that it was one Tess Lorenzo whom she had talked over the phone regarding plaintiff's
account and plaintiff's own statement that it was this woman who assured him that his card has not yet
been and will not be cancelled/suspended if he would pay defendant the sum of P15,000.00.
In view of the foregoing observations, it is needless to say that there was indeed an arrangement
between plaintiff and the defendant, as can be inferred from the acts of the defendant's employees, that
the subject credit card is still good and could still be used by the plaintiff as it would be honored by the
duly accredited establishment of defendant.
Not satisfied with the Regional Trial Court's decision, petitioner appealed to the Court of Appeals,
which in a decision promulgated on March 9, 1995 ruled in its dispositive portion.

Now, on the issue of whether or not upon receipt of the subject check defendant had agreed that the
card shall remain effective the Court takes note of the following:
1. An employee of defendant corporation unconditionally accepted the subject check upon its
delivery despite its being a postdated one; and the amount did not tally with plaintiff's obligation;
WHEREFORE, premises considered the decision appealed from is hereby AFFIRMED with the
MODIFICATION that the defendant-appellant shall pay the plaintiff-appellee the following:
P50,000.00 as moral damages: P25,000.00 as exemplary damages; and P10,000.00 by way of
attorney's fees.
SO ORDERED. 6

2. Defendant did not deny nor controvert plaintiff's claim that all of his payments were made in
checks; Hence, the present petition on the following assignment of errors:
I the CARD within thirty (30) days from the date or dates thereof. Failure of Cardholder to pay any and
THE LOWER COURT ERRED IN DECLARING THAT THERE WAS INDEED AN AGREEMENT
OR ARRANGEMENT ENTERED INTO BETWEEN THE PARTIES WHEREIN THE
DEFENDANT REQUIRED THE PLAINTIFF TO ISSUE A POSTDATED CHECK IN ITS FAVOR
IN THE AMOUNT OF P15,000.00 AS PAYMENT FOR HIS OVERDUE ACCOUNTS, WITH THE
CONDITION THAT THE PLAINTIFF'S CREDIT CARD WILL NOT BE SUSPENDED OR
CANCELLED.
II
THE LOWER COURT ERRED IN HOLDING DEFENDANT LIABLE FOR DAMAGES AND
ATTORNEY'S FEES ARISING OUT FROM THE DISHONOR OF THE PLAINTIFF'S CREDIT
CARD. 7
We find the petition meritorious.
The first issue to be resolved is whether petitioner had the right to suspend the credit card of the private
respondent.
Under the terms and conditions of the credit card, signed by the private respondent, any card with
outstanding balances after thirty (30) days from original billing/statement shall automatically be
suspended, thus:
PAYMENT OF CHARGES — BECC shall furnish the Cardholder a monthly statement of account
made through the use of the CARD and the Cardholder agrees that all charges made through the use of
the CARD shall be paid by the Cardholder on or before the last day for payment, which is twenty (20)
days from the date of the said statement of account; and such payment due date may be changed to an
earlier date if the Cardholder's account is considered overdue and/or with balances in excess of the
approved credit limit; or to such other date as may be deemed proper by the CARD issuer with notice
to the Cardholder on the same monthly statement of account. If the last day for payment falls on a
Saturday, Sunday or Holiday, the last day for payment automatically becomes the last working day
prior to the said payment date. However, notwithstanding the absence or lack of proof of service of the
statement of charges to the Cardholder, the latter shall pay any or all charges made through the use of
all charges made through the CARD within the payment period as stated in the statement of charges or
with in thirty (30) days from actual date or dates whichever occur earlier, shall render him in default
without the necessity of demand from BECC, which the Cardholder expressly waives. These charges
or balance thereof remaining unpaid after the payment due date indicated on the monthly statement of
account shall bear interest of 3% per month and an additional penalty fee equivalent to another 3% of
the amount due for every month or a fraction of a month's delay. PROVIDED, that if there occurs any
changes on the prevailing market rates BECC shall have the option to adjust the rate of interest and/or
penalty fee due on the outstanding obligation with prior notice to the Cardholder.
xxx xxx xxx
Any CARD with outstanding balances unpaid after thirty (30) days from original billing/statement date
shall automatically be suspended and those with accounts unpaid after sixty (60) days from said
original billing/statement date shall automatically be cancelled without prejudice to BECC's right to
suspend or cancel any CARD any time and for whatever reason. In case of default in his obligation as
provided for in the preceding paragraph, Cardholder shall surrender his CARD to BECC and shall in
addition to the interest and penalty charges aforementioned, pay the following liquidated damages
and/or fees (a) a collection fee of 25% of the amount due if the account is referred to a collection
agency or attorney; (b) a service fee of P100 for every dishonored check issued by the Cardholder's in
payment of his account, without prejudice; however to BECC's right of considering Cardholder's
obligation unpaid; cable cost for demanding payment or advising cancellation of membership shall
also be for Cardholder's account; and (c) a final fee equivalent to 25% of the unpaid balance, exclusive
of litigation expenses and judicial costs, if the payment of the account is enforced through court action.
8
The aforequoted provision of the card cannot be any clearer. By his own admission private respondent
no payment within thirty days for his billing/statement dated 27 September 1989. Neither did he make
payment for his original billing/statement dated 27 October 1989. Consequently as early as 28 October
1989 thirty days from the non-payment of his billing dated 27 September 1989, petitioner corporation
could automatically suspend his credit card.
The next issue is whether prior to the suspension of private respondent's credit card on 28 November
1989 the parties entered into an agreement whereby the card could still be used and would be duly
honored by duly accredited establishments.
We agree with the findings of the respondent court, that there was an arrangement between the parties, A In cash no, but in check, sir.
wherein the petitioner required the private respondent to issue a check worth P15,000.00 as payment
for the latter's billings. However we find that the private respondent was not able to comply with this
obligation. Q You said that you noted the word "immediately" in bold letters in your statement of accounts,
why did not pay immediately?

As the testimony of private respondent himself bears out, the agreement was for the immediate
payment of the outstanding account: A Because I received that late, sir.

Q In said statement of account that you are supposed to pay the P8,974.84 the charge of interest Q Yes, on November 22 when you received from the secretary of the defendant telling you to
and penalties, did you note that? pay the principal amount of P8,987.84, why did you not pay?

A Yes, sir I noted the date. A There was a communication between me and the defendant, I was required to pay P8,000.00
but I paid in check for P15,000.00, sir.

Q When?
Q Do you have any evidence to show that the defendant required you to pay in check for
P15,000.00?
A When I returned from the Quezon province, sir

A Yes, sir.
Q When?

Q Where is it?
A I think November 22, sir.

A It was telecommunication, sir.

Q So that before you used again the credit card you were not able to pay immediately this
P8,987.84 in cash?
Q So there is no written communication between you and the defendant?

A I paid P15,000.00, sir.

A There was none, sir.

Q My question Mr. witness is, did you pay this P8,987.84 in charge of interest and penalties
immediately in cash? Q There is no written agreement which says that P8,987.84 should be paid for P15,000.00 in
check, there is none?

A Yes, no written agreement, sir.
Q And you as a lawyer you know that a check is not considered as cash specially when it is
postdated sent to the defendant?
A That is correct, sir.
Clearly the purpose of the arrangement between the parties on November 22, 1989, was for the
immediate payment of the private respondent's outstanding account, in order that his credit card would
not be suspended.
As agreed upon by the parties, on the following day, private respondent did issue a check for
P15,000.00. However, the check was postdated 15 December 1989. Settled is the doctrine that a check
is only a substitute for money and not money, the delivery of such an instrument does not, by itself
operate as payment. 9 This is especially true in the case of a postdated check.
Thus, the issuance by the private respondent of the postdated check was not effective payment. It did
not comply with his obligation under the arrangement with Miss Lorenzo. Petitioner corporation was
therefore justified in suspending his credit card.
Finally, we find no legal and factual basis for private respondent's assertion that in canceling the credit
card of the private respondent, petitioner abused its right under the terms and conditions of the
contract.
To find the existence of an abuse of right Article 19 the following elements must be present (1) There
is a legal right or duty; (2) which is exercised in bad faith; (3) for the sole intent of prejudicing or
injuring another. 10
Time and again this Court has held that good faith is presumed and the burden of proving bad faith is
on the party alleging it. 11 This private respondent failed to do. In fact, the action of the petitioner
belies the existence of bad faith. As early as 28 October 1989, petitioner could have suspended private
respondent's card outright. Instead, petitioner allowed private respondent to use his card for several
weeks. Petitioner had even notified private respondent of the impending suspension of his credit card
and made special accommodations for him for setting his outstanding account. As such, petitioner
cannot be said to have capriciously and arbitrarily canceled the private respondent's credit card.
We do not dispute the findings of the lower court that private respondent suffered damages as a result
of the cancellation of his credit card. However, there is a material distinction between damages and
injury. Injury is the illegal invasion of a legal right; damage is the loss, hurt or harm which results from
the injury; and damages are the recompense or compensation awarded for the damage suffered. Thus,
there can be damage without injury in those instances in which the loss or harm was not the results of a
violation of a legal duty. In such cases, the consequences must be borne by the injured person alone,
the law affords no remedy for damages resulting from an act which does not amount to a legal injury
or wrong. These situations are often called damnum absque
injuria. 12
In other words, in order that the plaintiff may maintain an action for the injuries of which he
complaints, he must establish that such injuries resulted from a breach of duty which the defendant
owed to the plaintiff a concurrence of injury to the plaintiff and legal responsibility by the person
causing it. The underlying basis for the award of tort damages is the premise that an individual was
injured in contemplation of law. Thus, there must first be a breach of some duty and the imposition of
liability for that breach before damages may be awarded; 13 and the breach of such duty should be the
proximate cause of the injury.
We therefore disagree with the ruling of the respondent court that the dishonor of the credit card of the
private respondent by Café Adriatico is attributable to petitioner for its willful or gross neglect to
inform the private respondent of the suspension of his credit card, the unfortunate consequence of
which brought social humiliation and embarrassment to the private respondent. 14
It was petitioner's failure to settle his obligation which caused the suspension of his credit card and
subsequent dishonor at Café Adriatico. He can not now pass the blame to the petitioner for not
notifying him of the suspension of his card. As quoted earlier, the application contained the stipulation
that the petitioner could automatically suspend a card whose billing has not been paid for more than
thirty days. Nowhere is it stated in the terms and conditions of the application that there is a need of
notice before suspension may be affected as private respondent claims. 15
This notwithstanding on November 28, 1989, the day of the suspension of private respondent's card,
petitioner sent a letter by ordinary mail notifying private respondent that his card had been temporarily
suspended. Under the Rules on Evidence, there is a disputable presumption that letters duly directed
and mailed were received on the regular course of mail. 16 Aside from the private respondent's bare
denial he failed to present evidence to rebut the presumption that he received said notice. In fact upon
cross examination private respondent admitted that he did receive the letter notifying him of the
cancellation:
Q Now you were saying that there was a first letter sent to you by the defendant?
A Your letter, sir.
Q Was that the first letter that you received?
A Yes, sir.
Q It is that there was a communication first between you and the defendant?
A There was none, sir. I received a cancellation notice but that was after November 27. 17
As it was private respondent's own negligence which was the proximate cause of his embarrassing and
humiliating experience, we find the award of damages by the respondent court clearly unjustified. We
take note of the fact that private respondent has not yet paid his outstanding account with petitioner.
IN VIEW OF THE FOREGOING, the decision of the Court of Appeals ordering petitioner to pay
private respondent P100,000.00 as moral damages P50,000.00 as exemplary damages and P20,000.00
as attorney's fees, is SET ASIDE. Private respondent is DIRECTED to pay his outstanding obligation
with the petitioner in the amount of P14,439.41.
SO ORDERED.
Narvasa, C.J. and Romero, JJ., concur.
Purisima, J., took no part.
G.R. No. L-22405 June 30, 1971
PHILIPPINE EDUCATION CO., INC., plaintiff-appellant,
vs.
MAURICIO A. SORIANO, ET AL., defendant-appellees.
Marcial Esposo for plaintiff-appellant.
Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General Antonio G. Ibarra and
Attorney Concepcion Torrijos-Agapinan for defendants-appellees.
DIZON, J.:
An appeal from a decision of the Court of First Instance of Manila dismissing the complaint filed by
the Philippine Education Co., Inc. against Mauricio A. Soriano, Enrico Palomar and Rafael Contreras.
On April 18, 1958 Enrique Montinola sought to purchase from the Manila Post Office ten (10) money
orders of P200.00 each payable to E.P. Montinola withaddress at Lucena, Quezon. After the postal
teller had made out money ordersnumbered 124685, 124687-124695, Montinola offered to pay for
them with a private checks were not generally accepted in payment of money orders, the teller advised
him to see the Chief of the Money Order Division, but instead of doing so, Montinola managed to
leave building with his own check and the ten(10) money orders without the knowledge of the teller.
On the same date, April 18, 1958, upon discovery of the disappearance of the unpaid money orders, an
urgent message was sent to all postmasters, and the following day notice was likewise served upon all
banks, instructing them not to pay anyone of the money orders aforesaid if presented for payment. The
Bank of America received a copy of said notice three days later.
On April 23, 1958 one of the above-mentioned money orders numbered 124688 was received by
appellant as part of its sales receipts. The following day it deposited the same with the Bank of
America, and one day thereafter the latter cleared it with the Bureau of Posts and received from the
latter its face value of P200.00.
On September 27, 1961, appellee Mauricio A. Soriano, Chief of the Money Order Division of the
Manila Post Office, acting for and in behalf of his co-appellee, Postmaster Enrico Palomar, notified the
Bank of America that money order No. 124688 attached to his letter had been found to have been
irregularly issued and that, in view thereof, the amount it represented had been deducted from the
bank's clearing account. For its part, on August 2 of the same year, the Bank of America debited
appellant's account with the same amount and gave it advice thereof by means of a debit memo.
On October 12, 1961 appellant requested the Postmaster General to reconsider the action taken by his
office deducting the sum of P200.00 from the clearing account of the Bank of America, but his request
was denied. So was appellant's subsequent request that the matter be referred to the Secretary of Justice
for advice. Thereafter, appellant elevated the matter to the Secretary of Public Works and
Communications, but the latter sustained the actions taken by the postal officers.
In connection with the events set forth above, Montinola was charged with theft in the Court of First
Instance of Manila (Criminal Case No. 43866) but after trial he was acquitted on the ground of
reasonable doubt.
On January 8, 1962 appellant filed an action against appellees in the Municipal Court of Manila
praying for judgment as follows:
WHEREFORE, plaintiff prays that after hearing defendants be ordered:
(a) To countermand the notice given to the Bank of America on September 27, 1961, deducting
from the said Bank's clearing account the sum of P200.00 represented by postal money order No.
124688, or in the alternative indemnify the plaintiff in the same amount with interest at 8-½% per
annum from September 27, 1961, which is the rate of interest being paid by plaintiff on its overdraft
account;
(b) To pay to the plaintiff out of their own personal funds, jointly and severally, actual and moral
damages in the amount of P1,000.00 or in such amount as will be proved and/or determined by this
Honorable Court: exemplary damages in the amount of P1,000.00, attorney's fees of P1,000.00, and the
costs of action.
Plaintiff also prays for such other and further relief as may be deemed just and equitable.
On November 17, 1962, after the parties had submitted the stipulation of facts reproduced at pages 12
to 15 of the Record on Appeal, the above-named court rendered judgment as follows:
WHEREFORE, judgment is hereby rendered, ordering the defendants to countermand the notice given
to the Bank of America on September 27, 1961, deducting from said Bank's clearing account the sum
of P200.00 representing the amount of postal money order No. 124688, or in the alternative, to
indemnify the plaintiff in the said sum of P200.00 with interest thereon at the rate of 8-½% per annum
from September 27, 1961 until fully paid; without any pronouncement as to cost and attorney's fees.
The case was appealed to the Court of First Instance of Manila where, after the parties had resubmitted
the same stipulation of facts, the appealed decision dismissing the complaint, with costs, was rendered.
The first, second and fifth assignments of error discussed in appellant's brief are related to the other
and will therefore be discussed jointly. They raise this main issue: that the postal money order in
question is a negotiable instrument; that its nature as such is not in anyway affected by the letter dated
October 26, 1948 signed by the Director of Posts and addressed to all banks with a clearing account
with the Post Office, and that money orders, once issued, create a contractual relationship of debtor
and creditor, respectively, between the government, on the one hand, and the remitters payees or
endorses, on the other.
It is not disputed that our postal statutes were patterned after statutes in force in the United States. For
this reason, ours are generally construed in accordance with the construction given in the United States
to their own postal statutes, in the absence of any special reason justifying a departure from this policy
or practice. The weight of authority in the United States is that postal money orders are not negotiable
instruments (Bolognesi vs. U.S. 189 Fed. 395; U.S. vs. Stock Drawers National Bank, 30 Fed. 912),
the reason behind this rule being that, in establishing and operating a postal money order system, the
government is not engaging in commercial transactions but merely exercises a governmental power for Concepcion, C.J., Reyes, J.B.L., Makalintal, Zaldivar, Fernando, Teehankee, Barredo and Villamor,
the public benefit. JJ., concur.

It is to be noted in this connection that some of the restrictions imposed upon money orders by postal Castro and Makasiar, JJ., took no part.
laws and regulations are inconsistent with the character of negotiable instruments. For instance, such
laws and regulations usually provide for not more than one endorsement; payment of money orders
may be withheld under a variety of circumstances (49 C.J. 1153).

Of particular application to the postal money order in question are the conditions laid down in the letter G.R. No. L-49188 January 30, 1990
of the Director of Posts of October 26, 1948 (Exhibit 3) to the Bank of America for the redemption of
PHILIPPINE AIRLINES, INC., petitioner,
postal money orders received by it from its depositors. Among others, the condition is imposed that "in
cases of adverse claim, the money order or money orders involved will be returned to you (the bank) vs.
and the, corresponding amount will have to be refunded to the Postmaster, Manila, who reserves the
right to deduct the value thereof from any amount due you if such step is deemed necessary." The HON. COURT OF APPEALS, HON. JUDGE RICARDO D. GALANO, Court of First Instance
conditions thus imposed in order to enable the bank to continue enjoying the facilities theretofore of Manila, Branch XIII, JAIME K. DEL ROSARIO, Deputy Sheriff, Court of First Instance,
enjoyed by its depositors, were accepted by the Bank of America. The latter is therefore bound by Manila, and AMELIA TAN, respondents.
them. That it is so is clearly referred from the fact that, upon receiving advice that the amount
represented by the money order in question had been deducted from its clearing account with the
Manila Post Office, it did not file any protest against such action.

GUTIERREZ, JR., J.:

Moreover, not being a party to the understanding existing between the postal officers, on the one hand,
and the Bank of America, on the other, appellant has no right to assail the terms and conditions thereof
on the ground that the letter setting forth the terms and conditions aforesaid is void because it was not
issued by a Department Head in accordance with Sec. 79 (B) of the Revised Administrative Code. In
reality, however, said legal provision does not apply to the letter in question because it does not
provide for a department regulation but merely sets down certain conditions upon the privilege granted
to the Bank of Amrica to accept and pay postal money orders presented for payment at the Manila Post
Office. Such being the case, it is clear that the Director of Posts had ample authority to issue it
pursuant to Sec. 1190 of the Revised Administrative Code.
In view of the foregoing, We do not find it necessary to resolve the issues raised in the third and fourth
assignments of error.
Behind the simple issue of validity of an alias writ of execution in this case is a more fundamental
question. Should the Court allow a too literal interpretation of the Rules with an open invitation to
knavery to prevail over a more discerning and just approach? Should we not apply the ancient rule of
statutory construction that laws are to be interpreted by the spirit which vivifies and not by the letter
which killeth?
This is a petition to review on certiorari the decision of the Court of Appeals in CA-G.R. No. 07695
entitled "Philippine Airlines, Inc. v. Hon. Judge Ricardo D. Galano, et al.", dismissing the petition for
certiorari against the order of the Court of First Instance of Manila which issued an alias writ of
execution against the petitioner.

WHEREFORE, the appealed decision being in accordance with law, the same is hereby affirmed with The petition involving the alias writ of execution had its beginnings on November 8, 1967, when
costs. respondent Amelia Tan, under the name and style of Able Printing Press commenced a complaint for
damages before the Court of First Instance of Manila. The case was docketed as Civil Case No. 71307,
entitled Amelia Tan, et al. v. Philippine Airlines, Inc.
After trial, the Court of First Instance of Manila, Branch 13, then presided over by the late Judge Jesus
P. Morfe rendered judgment on June 29, 1972, in favor of private respondent Amelia Tan and against
petitioner Philippine Airlines, Inc. (PAL) as follows:
WHEREFORE, judgment is hereby rendered, ordering the defendant Philippine Air Lines:
1. On the first cause of action, to pay to the plaintiff the amount of P75,000.00 as actual
damages, with legal interest thereon from plaintiffs extra-judicial demand made by the letter of July
20, 1967;
2. On the third cause of action, to pay to the plaintiff the amount of P18,200.00, representing the
unrealized profit of 10% included in the contract price of P200,000.00 plus legal interest thereon from
July 20,1967;
3. On the fourth cause of action, to pay to the plaintiff the amount of P20,000.00 as and for
moral damages, with legal interest thereon from July 20, 1 967;
4. On the sixth cause of action, to pay to the plaintiff the amount of P5,000.00 damages as and
for attorney's fee.
Plaintiffs second and fifth causes of action, and defendant's counterclaim, are dismissed.
With costs against the defendant. (CA Rollo, p. 18)
On July 28, 1972, the petitioner filed its appeal with the Court of Appeals. The case was docketed as
CA-G.R. No. 51079-R.
On February 3, 1977, the appellate court rendered its decision, the dispositive portion of which reads:
IN VIEW WHEREOF, with the modification that PAL is condemned to pay plaintiff the sum of
P25,000.00 as damages and P5,000.00 as attorney's fee, judgment is affirmed, with costs. (CA Rollo, p.
29)
Notice of judgment was sent by the Court of Appeals to the trial court and on dates subsequent thereto,
a motion for reconsideration was filed by respondent Amelia Tan, duly opposed by petitioner PAL.
On May 23,1977, the Court of Appeals rendered its resolution denying the respondent's motion for
reconsideration for lack of merit.
No further appeal having been taken by the parties, the judgment became final and executory and on
May 31, 1977, judgment was correspondingly entered in the case.
The case was remanded to the trial court for execution and on September 2,1977, respondent Amelia
Tan filed a motion praying for the issuance of a writ of execution of the judgment rendered by the
Court of Appeals. On October 11, 1977, the trial court, presided over by Judge Galano, issued its order
of execution with the corresponding writ in favor of the respondent. The writ was duly referred to
Deputy Sheriff Emilio Z. Reyes of Branch 13 of the Court of First Instance of Manila for enforcement.
Four months later, on February 11, 1978, respondent Amelia Tan moved for the issuance of an alias
writ of execution stating that the judgment rendered by the lower court, and affirmed with modification
by the Court of Appeals, remained unsatisfied.
On March 1, 1978, the petitioner filed an opposition to the motion for the issuance of an alias writ of
execution stating that it had already fully paid its obligation to plaintiff through the deputy sheriff of
the respondent court, Emilio Z. Reyes, as evidenced by cash vouchers properly signed and receipted by
said Emilio Z. Reyes.
On March 3,1978, the Court of Appeals denied the issuance of the alias writ for being premature,
ordering the executing sheriff Emilio Z. Reyes to appear with his return and explain the reason for his
failure to surrender the amounts paid to him by petitioner PAL. However, the order could not be served
upon Deputy Sheriff Reyes who had absconded or disappeared.
I

On March 28, 1978, motion for the issuance of a partial alias writ of execution was filed by respondent
Amelia Tan. AN ALIAS WRIT OF EXECUTION CANNOT BE ISSUED WITHOUT PRIOR RETURN OF THE
ORIGINAL WRIT BY THE IMPLEMENTING OFFICER.

On April 19, 1978, respondent Amelia Tan filed a motion to withdraw "Motion for Partial Alias Writ
of Execution" with Substitute Motion for Alias Writ of Execution. On May 1, 1978, the respondent II
Judge issued an order which reads:

PAYMENT OF JUDGMENT TO THE IMPLEMENTING OFFICER AS DIRECTED IN THE WRIT

As prayed for by counsel for the plaintiff, the Motion to Withdraw 'Motion for Partial Alias Writ of OF EXECUTION CONSTITUTES SATISFACTION OF JUDGMENT.
Execution with Substitute Motion for Alias Writ of Execution is hereby granted, and the motion for
partial alias writ of execution is considered withdrawn.
III

Let an Alias Writ of Execution issue against the defendant for the fall satisfaction of the judgment
rendered. Deputy Sheriff Jaime K. del Rosario is hereby appointed Special Sheriff for the enforcement INTEREST IS NOT PAYABLE WHEN THE DECISION IS SILENT AS TO THE PAYMENT
thereof. (CA Rollo, p. 34) THEREOF.

On May 18, 1978, the petitioner received a copy of the first alias writ of execution issued on the same
day directing Special Sheriff Jaime K. del Rosario to levy on execution in the sum of P25,000.00 with
legal interest thereon from July 20,1967 when respondent Amelia Tan made an extra-judicial demand
through a letter. Levy was also ordered for the further sum of P5,000.00 awarded as attorney's fees.
IV
SECTION 5, RULE 39, PARTICULARLY REFERS TO LEVY OF PROPERTY OF JUDGMENT
DEBTOR AND DISPOSAL OR SALE THEREOF TO SATISFY JUDGMENT.

On May 23, 1978, the petitioner filed an urgent motion to quash the alias writ of execution stating that
no return of the writ had as yet been made by Deputy Sheriff Emilio Z. Reyes and that the judgment Can an alias writ of execution be issued without a prior return of the original writ by the implementing
debt had already been fully satisfied by the petitioner as evidenced by the cash vouchers signed and officer?
receipted by the server of the writ of execution, Deputy Sheriff Emilio Z. Reyes.

We rule in the affirmative and we quote the respondent court's decision with approval:
On May 26,1978, the respondent Jaime K. del Rosario served a notice of garnishment on the
depository bank of petitioner, Far East Bank and Trust Company, Rosario Branch, Binondo, Manila,
through its manager and garnished the petitioner's deposit in the said bank in the total amount of
The issuance of the questioned alias writ of execution under the circumstances here obtaining is
P64,408.00 as of May 16, 1978. Hence, this petition for certiorari filed by the Philippine Airlines, Inc.,
justified because even with the absence of a Sheriffs return on the original writ, the unalterable fact
on the grounds that:
remains that such a return is incapable of being obtained (sic) because the officer who is to make the
said return has absconded and cannot be brought to the Court despite the earlier order of the court for
him to appear for this purpose. (Order of Feb. 21, 1978, Annex C, Petition). Obviously, taking It should be emphasized that under the initial judgment, Amelia Tan was found to have been wronged
cognizance of this circumstance, the order of May 11, 1978 directing the issuance of an alias writ was by PAL.
therefore issued. (Annex D. Petition). The need for such a return as a condition precedent for the
issuance of an alias writ was justifiably dispensed with by the court below and its action in this regard
meets with our concurrence. A contrary view will produce an abhorent situation whereby the mischief She filed her complaint in 1967.
of an erring officer of the court could be utilized to impede indefinitely the undisputed and awarded
rights which a prevailing party rightfully deserves to obtain and with dispatch. The final judgment in
this case should not indeed be permitted to become illusory or incapable of execution for an indefinite
After ten (10) years of protracted litigation in the Court of First Instance and the Court of Appeals, Ms.
and over extended period, as had already transpired. (Rollo, pp. 35-36)
Tan won her case.

Judicium non debet esse illusorium; suum effectum habere debet (A judgment ought not to be illusory
It is now 1990.
it ought to have its proper effect).

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 (Ipekdjian Merchandising Co. v.
Court of Tax Appeals, 8 SCRA 59 [1963]; Commissioner of Internal Revenue v. Visayan Electric Co.,
19 SCRA 697, 698 [1967]). 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. More so, as in the 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 (Government of the Philippines v. Echaus and Gonzales, 71 Phil. 318). 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 the trial court's issuance of an alias writ of
execution is the issue of satisfaction of judgment.
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? The Court rules that 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.
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.
Under the peculiar circumstances of this case, the 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. Article 1240 of the Civil Code provides:
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. (Emphasis supplied)
Thus, payment must be made to the obligee himself or to an agent having authority, express or implied,
to receive the particular payment (Ulen v. Knecttle 50 Wyo 94, 58 [2d] 446, 111 ALR 65). 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 (Hendry v. Benlisa 37 Fla. 609, 20 SO 800,34 LRA
283). The receipt of money due on ajudgment by an officer authorized by law to accept it will,
therefore, satisfy the debt (See 40 Am Jm 729, 25; Hendry v. Benlisa supra; Seattle v. Stirrat 55 Wash.
104 p. 834,24 LRA [NS] 1275).

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.
There are circumstances in this case, however, which compel a different conclusion.
The payment made by the petitioner to the absconding sheriff 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.
Did such payments extinguish the judgment debt?
Article 1249 of the Civil Code provides:
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.
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 (US v. Robertson, 5 Pet. [US] 641, 8 L. ed. 257) 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 (Anderson v. Gill, 79 Md.. 312, 29 A 527, 25 LRA 200,47 Am. St. Rep. 402).
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 the petitioner'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 (See. 189, Act 2031 on Negs. Insts.; Art. 1249, Civil
Code; Bryan Landon Co. v. American Bank, 7 Phil. 255; Tan Sunco v. Santos, 9 Phil. 44; 21 R.C.L.
60, 61). 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 (Art. 1249, Civil Code, par. 3).
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 Emilio Z. Reyes, neither has she received anything. The same rule should apply.
It is argued that if PAL had paid in cash to Sheriff Reyes, there would have been payment in full legal
contemplation. 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.
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. Mature thought is given to the possibility of the cash being lost,
of the bearer being waylaid or running off with what he is carrying for another. 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.
As a protective measure, therefore, the courts encourage the practice of payments by cheek provided
adequate controls are instituted to prevent wrongful payment and illegal withdrawal or disbursement of
funds. If particularly big amounts are involved, escrow arrangements with a bank and carefully
supervised by the court would be the safer procedure. Actual transfer of funds takes place within the
safety of bank premises. These practices are perfectly legal. The object is always the safe and incorrupt
execution of the judgment.
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.
As explained and held by the respondent court:
... [K]nowing as it does that the intended payment was for the private party respondent Amelia Tan, the
petitioner corporation, utilizing the services of its personnel who are or should be knowledgeable about
the accepted procedures and resulting consequences of the checks drawn, nevertheless, in this instance,
without prudence, departed from what is generally observed and done, and placed as payee in the
checks the name of the errant Sheriff and not the name of the rightful payee. Petitioner thereby created
a situation which permitted the said Sheriff to personally encash said checks and misappropriate the
proceeds thereof to his exclusive personal benefit. For the prejudice that resulted, the petitioner himself
must bear the fault. The judicial guideline which we take note of states as follows:
As between two innocent persons, one of whom must suffer the consequence of a breach of trust, the
one who made it possible by his act of confidence must bear the loss. (Blondeau, et al. v. Nano, et al.,
L-41377, July 26, 1935, 61 Phil. 625)
Having failed to employ the proper safeguards to protect itself, the judgment debtor whose act made
possible the loss had but itself to blame.
The attention of this Court has been called to the bad practice of a number of executing officers, of
requiring checks in satisfaction of judgment debts to be made out in their own names. If a sheriff
directs a judgment debtor to issue the checks in the sheriff's name, claiming he must get his
commission or fees, the debtor must report the sheriff immediately to the court which ordered the
execution or to the Supreme Court for appropriate disciplinary action. Fees, commissions, and salaries
are paid through regular channels. This improper procedure also allows such officers, who have sixty
(60) days within which to make a return, to treat the moneys as their personal finds and to deposit the
same in their private accounts to earn sixty (60) days interest, before said finds are turned over to the
court or judgment creditor (See Balgos v. Velasco, 108 SCRA 525 [1981]). Quite as easily, such
officers could put up the defense that said checks had been issued to them in their private or personal
capacity. Without a receipt evidencing payment of the judgment debt, the misappropriation of finds by
such officers becomes clean and complete. The practice is ingenious but evil as it unjustly enriches
court personnel at the expense of litigants and the proper administration of justice. The temptation
could be far greater, as proved to be in this case of the absconding sheriff. The correct and prudent
thing for the petitioner was to have issued the checks in the intended payee's name.
The pernicious effects of issuing checks in the name of a person other than the intended payee, without
the latter's agreement or consent, are as many as the ways that an artful mind could concoct to get
around the safeguards provided by the law on negotiable instruments. An angry litigant who loses a
case, as a rule, would not want the winning party to get what he won in the judgment. He would think
of ways to delay the winning party's getting what has been adjudged in his favor. We cannot condone
that practice especially in cases where the courts and their officers are involved.1âwphi1 We rule
against the petitioner.
Anent the applicability of Section 15, Rule 39, as follows:
Section 15. 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 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. ...
the respondent court held:
We are obliged to rule that the judgment debt cannot be considered satisfied and therefore the orders of
the respondent judge granting the alias writ of execution may not be pronounced as a nullity.
xxx xxx xxx SO ORDERED.

It is clear and manifest that after levy or garnishment, for a judgment to be executed there is the Fernan, C.J., Cruz, Paras, Bidin, Griño-Aquino, Medialdea and Regalado, JJ., concur.
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. Separate Opinions

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.
NARVASA, J., dissenting:

Execution is the process which carries into effect a decree or judgment (Painter v. Berglund, 31 Cal.
The execution of final judgments and orders is a function of the sheriff, an officer of the court whose
App. 2d. 63, 87 P 2d 360, 363; Miller v. London, 294 Mass 300, 1 NE 2d 198, 200; Black's Law
authority is by and large statutorily determined to meet the particular exigencies arising from or
Dictionary), whereas the satisfaction of a judgment is the payment of the amount of the writ, or a
connected with the performance of the multifarious duties of the office. It is the acknowledgment of
lawful tender thereof, or the conversion by sale of the debtor's property into an amount equal to that
the many dimensions of this authority, defined by statute and chiselled by practice, which compels me
due, and, it may be done otherwise than upon an execution (Section 47, Rule 39). Levy and delivery by
to disagree with the decision reached by the majority.
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 A consideration of the wide latitude of discretion allowed the sheriff as the officer of the court most
satisfy the judgment debt. It is but to stress that the implementing officer's duty should not stop at his directly involved with the implementation and execution of final judgments and orders persuades me
receipt of payments but must continue until payment is delivered to the obligor or creditor. that PAL's payment to the sheriff of its judgment debt to Amelia Tan, though made by check issued in
said officer's name, lawfully satisfied said obligation and foreclosed further recourse therefor against
PAL, notwithstanding the sheriffs failure to deliver to Tan the proceeds of the check.
Finally, we find no error in the respondent court's pronouncement on the inclusion of interests to be
recovered under the alias writ of execution. This logically follows from our ruling that PAL is liable
for both the lost checks and interest. The respondent court's decision in CA-G.R. No. 51079-R does not It is a matter of history that the judiciary .. is an inherit or of the Anglo-American tradition. While the
totally supersede the trial court's judgment in Civil Case No. 71307. It merely modified the same as to common law as such .. "is not in force" in this jurisdiction, "to breathe the breath of life into many of
the principal amount awarded as actual damages. the institutions, introduced [here] under American sovereignty, recourse must be had to the rules,
principles and doctrines of the common law under whose protecting aegis the prototypes of these
institutions had their birth" A sheriff is "an officer of great antiquity," and was also called the shire
reeve. A shire in English law is a Saxon word signifying a division later called a county. A reeve is an
WHEREFORE, IN VIEW OF THE FOREGOING, the petition is hereby DISMISSED. The judgment
ancient English officer of justice inferior in rank to an alderman .. appointed to process, keep the
of the respondent Court of Appeals is AFFIRMED and the trial court's issuance of the alias writ of
King's peace, and put the laws in execution. From a very remote period in English constitutional
execution against the petitioner is upheld without prejudice to any action it should take against the
history .. the shire had another officer, namely the shire reeve or as we say, the sheriff. .. The Sheriff
errant sheriff Emilio Z. Reyes. The Court Administrator is ordered to follow up the actions taken
was the special representative of the legal or central authority, and as such usually nominated by the
against Emilio Z. Reyes.
King. .. Since the earliest times, both in England and the United States, a sheriff has continued his
status as an adjunct of the court .. . As it was there, so it has been in the Philippines from the time of
the organization of the judiciary .. . (J. Fernando's concurring opinion in Bagatsing v. Herrera, 65
SCRA 434)
One of a sheriff s principal functions is to execute final judgments and orders. The Rules of Court
require the writs of execution to issue to him, directing him to enforce such judgments and orders in
the manner therein provided (Rule 39). The mode of enforcement varies according to the nature of the
judgment to be carried out: whether it be against property of the judgment debtor in his hands or in the
hands of a third person i e. money judgment), or for the sale of property, real or personal (i.e.
foreclosure of mortgage) or the delivery thereof, etc. (sec. 8, Rule 39).
Under sec. 15 of the same Rule, the sheriff is empowered to levy on so much of the judgment debtor's
property as may be sufficient to enforce the money judgment and sell these properties at public auction
after due notice to satisfy the adjudged amount. It is the sheriff who, after the auction sale, conveys to
the purchaser the property thus sold (secs. 25, 26, 27, Rule 39), and pays the judgment creditor so
much of the proceeds as will satisfy the judgment. When the property sold by him on execution is an
immovable which consequently gives rise to a light of redemption on the part of the judgment debtor
and others (secs. 29, 30, Rule 39), it is to him (or to the purchaser or redemptioner that the payments
may be made by those declared by law as entitled to redeem (sec. 31, Rule 39); and in this situation, it
becomes his duty to accept payment and execute the certificate of redemption (Enage v. Vda. y Hijos
de Escano, 38 Phil. 657, cited in Moran, Comments on the Rules of Court, 1979 ed., vol. 2, pp. 326-
327). It is also to the sheriff that "written notice of any redemption must be given and a duplicate filed
with the registrar of deeds of the province, and if any assessments or taxes are paid by the
redemptioner or if he has or acquires any lien other than that upon which the redemption was made,
notice thereof must in like manner be given to the officer and filed with the registrar of deeds," the
effect of failure to file such notice being that redemption may be made without paying such
assessments, taxes, or liens (sec. 30, Rule 39).
The sheriff may likewise be appointed a receiver of the property of the judgment debtor where the
appointment of the receiver is deemed necessary for the execution of the judgment (sec. 32, Rule 39).
At any time before the sale of property on execution, the judgment debtor may prevent the sale by
paying the sheriff the amount required by the execution and the costs that have been incurred therein
(sec. 20, Rule 39).
The sheriff is also authorized to receive payments on account of the judgment debt tendered by "a
person indebted to the judgment debtor," and his "receipt shall be a sufficient discharge for the amount
so paid or directed to be credited by the judgment creditor on the execution" (sec. 41, Rule 39).
Now, obviously, the sheriff s 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 (Javellana v. Mirasol, et al., 40 Phil. 761). 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 (Art. 1240,
Civil Code; See. 46 of the Code of Civil Procedure; Enage v. Vda y Hijos de Escano, 38 Phil. 657,
cited in Javellana v. Mirasol, 40 Phil. 761) operates to release the judgment debtor from any further
obligations on the judgment.
The sheriff is an adjunct of the court; a court functionary whose competence involves both discretion
and personal liability (concurring opinion of J. Fernando, citing Uy Piaoco v. Osmena, 9 Phil. 299, in
Bagatsing v. Herrera, 65 SCRA 434). Being an officer of the court and acting within the scope of his
authorized functions, the sheriff s receipt of the checks in payment of the judgment execution, may be
deemed, in legal contemplation, as received by the court itself (Lara v. Bayona, 10 May 1955, No. L-
10919).
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).
There is no question that the checks came into the sheriffs possession in his official capacity. The court
may require of the judgment debtor, in complying with the judgment, no further burden than his
vigilance in ensuring that the person he is paying money or delivering property to is a person
authorized by the court to receive it. Beyond this, further expectations become unreasonable. To my
mind, a proposal that would make the judgment debtor unqualifiedly the insurer of the judgment
creditor's entitlement to the judgment amount which is really what this case is all about begs the
question.
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 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.
As payment to the court discharges the judgment debtor from his responsibility on the judgment, so too
must payment to the person designated by such court and authorized to act in its behalf, operate to
produce the same effect.
It is unfortunate and deserving of commiseration that Amelia Tan was deprived of what was adjudged
to her when the sheriff misappropriated the payment made to him by PAL in dereliction of his sworn
duties. But I submit that her remedy lies, not here and in reviving liability under a judgment already
lawfully satisfied, but elsewhere.
ACCORDINGLY, I vote to grant the petition.
Melencio-Herrera, Gancayco, J., concurs.
FELICIANO, J., dissenting:
I concur in the able dissenting opinions of Narvasa and Padilla, JJ. and would merely wish to add a few
footnotes to their lucid opinions.
1. Narvasa, J. has demonstrated in detail that a sheriff is authorized by the Rules of Court and
our case law to receive either legal tender or checks from the judgment debtor in satisfaction of the
judgment debt. In addition, Padilla, J. has underscored the obligation of the sheriff, imposed upon him
by the nature of his office and the law, to turn over such legal tender, checks and proceeds of execution
sales to the judgment creditor. The failure of a sheriff to effect such turnover and his conversion of the
funds (or goods) held by him to his own uses, do not have the effect of frustrating payment by and
consequent discharge of the judgment debtor.
To hold otherwise would be to throw the risk of the sheriff faithfully performing his duty as a public
officer upon those members of the general public who are compelled to deal with him. It seems to me
that a judgment debtor who turns over funds or property to the sheriff can not reasonably be made an
insurer of the honesty and integrity of the sheriff and that the risk of the sheriff carrying out his duties
honestly and faithfully is properly lodged in the State itself The sheriff, like all other officers of the
court, is appointed and paid and controlled and disciplined by the Government, more specifically by
this Court. The public surely has a duty to report possible wrongdoing by a sheriff or similar officer to
the proper authorities and, if necessary, to testify in the appropriate judicial and administrative
disciplinary proceedings. But to make the individual members of the general community insurers of
the honest performance of duty of a sheriff, or other officer of the court, over whom they have no
control, is not only deeply unfair to the former. It is also a confession of comprehensive failure and
comes too close to an abdication of duty on the part of the Court itself. This Court should have no part
in that.
2. I also feel compelled to comment on the majority opinion written by Gutierrez, J. with all his
customary and special way with words. My learned and eloquent brother in the Court apparently
accepts the proposition that payment by a judgment debtor of cash to a sheriff produces the legal
effects of payment, the sheriff being authorized to accept such payment. Thus, in page 10 of his
ponencia, Gutierrez, J. writes:

The receipt of money due on a judgment by an officer authorized by law to accept it will satisfy the
debt. (Citations omitted)
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 would be valid
payment to extinguish the judgment debt.
Shortly thereafter, however, Gutierrez, J. backs off from the above position and strongly implies that
payment in cash to the sheriff is sheer imprudence on the part of the judgment debtor and that
therefore, should the sheriff abscond with the cash, the judgment debtor has not validly discharged the
judgment debt:
It is argued that if PAL had paid in cash to Sheriff Reyes, there would have been payment in full legal
contemplation. The reasoning is logical but is it valid and proper?
In the first place, PAL did not pay in cash. It paid in checks.
And second, payment in cash always carries with it certain cautions. Nobody hands over big amounts
of cash in a careless and inane manner. Mature thought is given to the possibility of the cash being lost,
of the bearer being waylaid or running off with what he is carrying for another. Payment in checks is
precisely intended to avoid the possibility of the money going to the wrong party....
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. ... (Emphasis in the original) (Majority opinion, pp. 12-13)
There is no dispute with the suggestion apparently made that maximum safety is secured where the
judgment debtor delivers to the sheriff not cash but a check made out, not in the name of the sheriff,
but in the judgment creditor's name. The fundamental point that must be made, however, is that 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. 1 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. This brings me back to my earlier
point that 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.2 The judgment creditor, in circumstances like those of the
instant case, could be allowed to execute upon the absconding sheriff s bond.3
I believe the Petition should be granted and I vote accordingly.
PADILLA, J., Dissenting Opinion
From the facts that appear to be undisputed, I reach a conclusion different from that of the majority.
Sheriff Emilio Z. Reyes, the trial court's authorized sheriff, armed with a writ of execution to enforce a
final money judgment against the petitioner Philippine Airlines (PAL) in favor of private respondent
Amelia Tan, proceeded to petitioner PAL's office to implement the writ.
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, because under Article 1240 of the Civil Code,
"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." And said payment if made by PAL in cash,
i.e., Philippine currency, to Sheriff Reyes would have satisfied PAL's judgment obligation, as payment
is a legally recognized mode for extinguishing one's obligation. (Article 1231, Civil Code).
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. As held:
Payment of a judgment, to operate as a release or satisfaction, even pro tanto must be made to the
plaintiff or to some person authorized by him, or by law, to receive it. The payment of money to the
sheriff having an execution satisfies it, and, if the plaintiff fails to receive it, his only remedy is against
the officer (Henderson v. Planters' and Merchants Bank, 59 SO 493, 178 Ala. 420).

Under Sec. 15, Rule 39, Rules of Court which provides that-
Sec. 15. 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 property, if there 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. ... .(emphasis
supplied)
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.
Payment of an execution satisfies it without regard to whether the officer pays it over to the creditor or
misapplies it (340, 33 C.J.S. 644, citing Elliot v. Higgins, 83 N.C. 459). If defendant consents to the
Sheriff s misapplication of the money, however, defendant is estopped to claim that the debt is satisfied
(340, 33 C.J.S. 644, citing Heptinstall v. Medlin 83 N.C. 16).
The above rulings find even more cogent application in the case at bar because, as contended by
petitioner PAL (not denied by private respondent), when Sheriff Reyes served the writ of execution on
PAL, he (Reyes) was accompanied by private respondent's counsel. Prudence dictated that when PAL
delivered to Sheriff Reyes the two (2) questioned checks (payable to Sheriff Reyes), private
respondent's 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.
ACCORDINGLY, I vote to grant the petition and to quash the court a quo's alias writ of execution.

Did the situation change by PAL's delivery of its two (2) checks totalling P30,000.00 drawn against its Melencio-Herrera, Gancayco, Sarmiento, Cortes, JJ., concurs.
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 Melencio-Herrera, Gancayco, Sarmiento, Cortes, JJ., concurs.
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.

If the PAL cheeks in question had not been encashed by Sheriff Reyes, there would be no payment by
PAL and, consequently no discharge or satisfaction of its judgment obligation. But the checks had
been encashed by Sheriff Reyes giving rise to a situation as if PAL had paid Sheriff Reyes in cash, i.e.,
Philippine currency. This, we repeat, is payment, in legal contemplation, on the part of PAL and this
payment legally discharged PAL from its judgment obligation to the judgment creditor. To be sure, the
same 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
G.R. No. 176664 July 21, 2008 Color D.B. Gray Met.

BANK OF THE PHILIPPINE ISLANDS, Petitioner,

vs. Toyota, with notice to respondents, executed a Deed of Assignment5 transferring all its rights, title,
and interest in the Chattel Mortgage to Far East Bank and Trust Company (FEBTC).
SPOUSES REYNALDO AND VICTORIA ROYECA, Respondents.

Claiming that the respondents failed to pay four (4) monthly amortizations covering the period from
DECISION May 18, 1997 to August 18, 1997, FEBTC sent a formal demand to respondents on March 14, 2000
asking for the payment thereof, plus penalty.6 The respondents refused to pay on the ground that they
had already paid their obligation to FEBTC.
NACHURA, J.:

Bank of the Philippine Islands (BPI) seeks a review of the Court of Appeals (CA) Decision1 dated July
12, 2006, and Resolution2 dated February 13, 2007, which dismissed its complaint for replevin and
damages and granted the respondents’ counterclaim for damages.
The case stems from the following undisputed facts:
On April 19, 2000, FEBTC filed a Complaint for Replevin and Damages against the respondents with
the Metropolitan Trial Court (MeTC) of Manila praying for the delivery of the vehicle, with an
alternative prayer for the payment of ₱48,084.00 plus interest and/or late payment charges at the rate of
36% per annum from May 18, 1997 until fully paid. The complaint likewise prayed for the payment of
₱24,462.73 as attorney’s fees, liquidated damages, bonding fees and other expenses incurred in the
seizure of the vehicle. The complaint was later amended to substitute BPI as plaintiff when it merged
with and absorbed FEBTC.7

On August 23, 1993, spouses Reynaldo and Victoria Royeca (respondents) executed and delivered to In their Answer, respondents alleged that on May 20, 1997, they delivered to the Auto Financing
Toyota Shaw, Inc. a Promissory Note3 for ₱577,008.00 payable in 48 equal monthly installments of Department of FEBTC eight (8) postdated checks in different amounts totaling ₱97,281.78. The
₱12,021.00, with a maturity date of August 18, 1997. The Promissory Note provides for a penalty of Acknowledgment Receipt,8 which they attached to the Answer, showed that FEBTC received the
3% for every month or fraction of a month that an installment remains unpaid. following checks:

To secure the payment of said Promissory Note, respondents executed a Chattel Mortgage4 in favor of DATE BANK CHECK NO. AMOUNT
Toyota over a certain motor vehicle, more particularly described as follows:
26 May 97 Landbank #610945 ₱13,824.15

6 June 97 Head Office #610946 12,381.63

<
30 May 97 FEBTC #17A00-11550P 12,021.00
p>Make and Type 1993 Toyota Corolla 1.3 XL
15 June 97 Shaw Blvd. #17A00-11549P 12,021.00
Motor No. 2E-2649879
30 June 97 " #17A00-11551P 12,021.00

18 June 97 Landbank #610947 11,671.00

Serial No. EE100-9512571
18 July 97 Head Office #610948 11,671.00
18 August 97

#610949 11,671.00
The respondents further averred that they did not receive any notice from the drawee banks or from
FEBTC that these checks were dishonored. 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. They alleged that the complaint is frivolous and plainly vexatious. They then prayed that
they be awarded moral and exemplary damages, attorney’s fees and costs of suit.9
On appeal, the Regional Trial Court (RTC) set aside the MeTC Decision and ordered the respondents
to pay the amount claimed by the petitioner. The dispositive portion of its Decision11 dated August 11,
2005 reads:
WHEREFORE, premises considered, the Decision of the Metropolitan Trial Court, Branch 9 dated
February 23, 2005 is REVERSED and a new one entered directing the defendants-appellees to pay the
plaintiff-appellant, jointly and severally,

During trial, Mr. Vicente Magpusao testified that he had been connected with FEBTC since 1994 and
had assumed the position of Account Analyst since its merger with BPI. He admitted that they had, in
fact, received the eight checks from the respondents. However, two of these checks (Landbank Check 1. The sum of ₱48,084.00 plus interest and/or late payment charges thereon at the rate of 36% per
No. 0610947 and FEBTC Check No. 17A00-11551P) amounting to ₱23,692.00 were dishonored. He annum from May 18, 1997 until fully paid;
recalled that the remaining two checks were not deposited anymore due to the previous dishonor of the
two checks. He said that after deducting these payments, the total outstanding balance of the obligation
was ₱48,084.00, which represented the last four monthly installments. 2. The sum of ₱10,000.00 as attorney’s fees; and

On February 23, 2005, the MeTC dismissed the case and granted the respondents’ counterclaim for 3. The costs of suit.
damages, thus:

SO ORDERED.12
WHEREFORE, judgment is hereby rendered dismissing the complaint for lack of cause of action, and
on the counterclaim, plaintiff is ordered to indemnify the defendants as follows:
The RTC denied the respondents’ motion for reconsideration.13

a) The sum of PhP30,000.00 as and by way of moral damages;

The respondents elevated the case to the Court of Appeals (CA) through a petition for review. They
succeeded in obtaining a favorable judgment when the CA set aside the RTC’s Decision and reinstated
b) The sum of PhP30,000.00 as and by way of exemplary damages; the MeTC’s Decision on July 12, 2006.14 On February 13, 2007, the CA denied the petitioner’s
motion for reconsideration.15

c) The sum of PhP20,000.00 as and by way of attorney’s fees; and

The issues submitted for resolution in this petition for review are as follows:

d) To pay the costs of the suit.

I. WHETHER OR NOT RESPONDENTS WERE ABLE TO PROVE FULL PAYMENT OF THEIR
OBLIGATION AS ONE OF THEIR AFFIRMATIVE DEFENSES.
SO ORDERED.10
II. WHETHER OR NOT TENDER OF CHECKS CONSTITUTES PAYMENT.
III. WHETHER OR NOT RESPONDENTS ARE ENTITLED TO MORAL AND EXEMPLARY
DAMAGES AND ATTORNEY’S FEES.16
The petitioner insists that the respondents did not sufficiently prove the alleged payment. It avers that,
under the law and existing jurisprudence, delivery of checks does not constitute payment. 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 respondents postulate that they have established payment of the amount being
claimed by the petitioner and, unless the petitioner proves that the checks have been dishonored, they
should not be made liable to pay the obligation again.17
The petition is partly meritorious.
In civil cases, the party having the burden of proof must establish his case by a preponderance of
evidence, or evidence which is more convincing to the court as worthy of belief than that which is
offered in opposition thereto.18 Thus, the party, whether plaintiff or defendant, who asserts the
affirmative of an issue has the onus to prove his assertion in order to obtain a favorable judgment. For
the plaintiff, the burden to prove its positive assertions never parts. For the defendant, an affirmative
defense is one which is not a denial of an essential ingredient in the plaintiff’s cause of action, but one
which, if established, will be a good defense – i.e. an "avoidance" of the claim.19
In Jimenez v. NLRC,20 cited by both the RTC and the CA, the Court elucidated on who, between the
plaintiff and defendant, has the burden to prove the affirmative defense of payment:
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 non-payment. The debtor has the burden of showing with legal certainty
that the obligation has been discharged by payment.
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. Where the debtor introduces some evidence of payment, the burden of
going forward with the evidence - as distinct from the general burden of proof - shifts to the creditor,
who is then under a duty of producing some evidence to show non-payment.21
In applying these principles, the CA and the RTC, however, arrived at different conclusions. While
both agreed that the respondents had the burden of proof to establish payment, the two courts did not
agree on whether the respondents were able to present sufficient evidence of payment — enough to
shift the burden of evidence to the petitioner. The RTC found that the respondents failed to discharge
this burden because they did not introduce evidence of payment, considering that mere delivery of
checks does not constitute payment.22 On the other hand, the CA concluded that the respondents
introduced sufficient evidence of payment, as opposed to the petitioner, which failed to produce
evidence that the checks were in fact dishonored. It noted that the petitioner could have easily
presented the dishonored checks or the advice of dishonor and required respondents to replace the
dishonored checks but none was presented. Further, the CA remarked that it is absurd for a bank, such
as petitioner, 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 respondents 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.23 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. 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.24
To establish their defense, the respondents therefore had to present proof, not only that they delivered
the checks to the petitioner, but also that the checks were encashed. The respondents failed to do so.
Had the checks been actually encashed, the respondents 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.1avvphi1
Because of this failure of the respondents to present sufficient proof of payment, it was no longer
necessary for the petitioner to prove non-payment, particularly proof that the checks were dishonored.
The burden of evidence is shifted only if the party upon whom it is lodged was able to adduce
preponderant evidence to prove its claim.25
To stress, the obligation to prove that the checks were not dishonored, but were in fact encashed, fell
upon the respondents who would benefit from such fact. That payment was effected through the eight
checks was the respondents’ affirmative allegation that they had to establish with legal certainty. If the
petitioner 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.26 The fact is that the petitioner’s 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 the petitioner, as payee, did not have a legal obligation to inform the
respondents 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 respondents, therefore,
cannot fault the petitioner for not notifying them of the non-payment of the checks because whatever
rights were transgressed by such omission belonged only to the petitioner.
Nonetheless, the Court cannot ignore what the respondents have consistently raised — that they were
not notified of the non-payment 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.32 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.33
WHEREFORE, premises considered, the petition is PARTIALLY GRANTED. The Court of Appeals
Decision dated July 12, 2006, and Resolution dated February 13, 2007, are REVERSED and SET
ASIDE. The Decision of the Regional Trial Court, dated August 11, 2005, is REINSTATED with the
MODIFICATION that respondents are ordered to deliver the possession of the subject vehicle, or in
the alternative, pay the petitioner ₱48,084.00 plus late penalty charges/interest thereon at the rate of
12% per annum from May 18, 1997 until fully paid.
SO ORDERED.

In all, we find that the evidence at hand preponderates in favor of the petitioner. The petitioner’s
possession of the documents pertaining to the obligation strongly buttresses its claim that the
obligation has not been extinguished. The creditor’s possession of the evidence of debt is proof that the
debt has not been discharged by payment.27 A promissory note in the hands of the creditor is a proof
of indebtedness rather than proof of payment.28 In an action for replevin by a mortgagee, it is prima
facie evidence that the promissory note has not been paid.29 Likewise, an uncanceled mortgage in the
possession of the mortgagee gives rise to the presumption that the mortgage debt is unpaid.30

Finally, the respondents posit that the petitioner’s claim is barred by laches since it has been three
years since the checks were issued. We do not agree. Laches is a recourse in equity. Equity, however,
is applied only in the absence, never in 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.31 The
petitioner’s action was filed within the ten-year prescriptive period provided under Article 1144 of the
New Civil Code. Hence, there is no room for the application of laches.
G.R. No. 100290 June 4, 1993
NORBERTO TIBAJIA, JR. and CARMEN TIBAJIA, petitioners,
vs.
THE HONORABLE COURT OF APPEALS and EDEN TAN, respondents.
PADILLA, J.:
Petitioners, spouses Norberto Tibajia, Jr. and Carmen Tibajia, are before this Court assailing the
decision * of respondent appellate court dated 24 April 1991 in CA-G.R. SP No. 24164 denying their
petition for certiorari prohibition, and injunction which sought to annul the order of Judge Eutropio
Migriño of the Regional Trial Court, Branch 151, Pasig, Metro Manila in Civil Case No. 54863
entitled "Eden Tan vs. Sps. Norberto and Carmen Tibajia."
Stated briefly, the relevant facts are as follows:
Case No. 54863 was a suit for collection of a sum of money filed by Eden Tan against the Tibajia
spouses. A writ of attachment was issued by the trial court on 17 August 1987 and on 17 September
1987, the Deputy Sheriff filed a return stating that a deposit made by the Tibajia spouses in the
Regional Trial Court of Kalookan City in the amount of Four Hundred Forty Two Thousand Seven
Hundred and Fifty Pesos (P442,750.00) in another case, had been garnished by him. On 10 March
1988, the Regional Trial Court, Branch 151 of Pasig, Metro Manila rendered its decision in Civil Case
No. 54863 in favor of the plaintiff Eden Tan, ordering the Tibajia spouses to pay her an amount in
excess of Three Hundred Thousand Pesos (P300,000.00). On appeal, the Court of Appeals modified
the decision by reducing the award of moral and exemplary damages. The decision having become
final, Eden Tan filed the corresponding motion for execution and thereafter, the garnished funds which
by then were on deposit with the cashier of the Regional Trial Court of Pasig, Metro Manila, were
levied upon.
On 14 December 1990, the Tibajia spouses delivered to Deputy Sheriff Eduardo Bolima the total
money judgment in the following form:
Cashier's Check P262,750.00
Cash 135,733.70
————
Total P398,483.70
Private respondent, Eden Tan, refused to accept the payment made by the Tibajia spouses and instead
insisted that the garnished funds deposited with the cashier of the Regional Trial Court of Pasig, Metro
Manila be withdrawn to satisfy the judgment obligation. On 15 January 1991, defendant spouses
(petitioners) filed a motion to lift the writ of execution on the ground that the judgment debt had
already been paid. On 29 January 1991, the motion was denied by the trial court on the ground that
payment in cashier's check is not payment in legal tender and that payment was made by a third party
other than the defendant. A motion for reconsideration was denied on 8 February 1991. Thereafter, the
spouses Tibajia filed a petition for certiorari, prohibition and injunction in the Court of Appeals. The
appellate court dismissed the petition on 24 April 1991 holding that payment by cashier's check is not
payment in legal tender as required by Republic Act No. 529. The motion for reconsideration was
denied on 27 May 1991.
In this petition for review, the Tibajia spouses raise the following issues:
I WHETHER OR NOT THE BPI CASHIER'S CHECK NO. 014021 IN THE AMOUNT OF
P262,750.00 TENDERED BY PETITIONERS FOR PAYMENT OF THE JUDGMENT DEBT, IS
"LEGAL TENDER".
II WHETHER OR NOT THE PRIVATE RESPONDENT MAY VALIDLY REFUSE THE
TENDER OF PAYMENT PARTLY IN CHECK AND PARTLY IN CASH MADE BY
PETITIONERS, THRU AURORA VITO AND COUNSEL, FOR THE SATISFACTION OF THE
MONETARY OBLIGATION OF PETITIONERS-SPOUSES.1
The only issue to be resolved in this case is whether or not payment by means of check (even by
cashier's check) is considered payment in legal tender as required by the Civil Code, Republic Act No.
529, and the Central Bank Act.
It is contended by the petitioners that the check, which was a cashier's check of the Bank of the
Philippine Islands, undoubtedly a bank of good standing and reputation, and which was a crossed
check marked "For Payee's Account Only" and payable to private respondent Eden Tan, is considered
legal tender, payment with which operates to discharge their monetary obligation.2 Petitioners, to
support their contention, cite the case of New Pacific Timber and Supply Co., Inc. v. Señeris3 where
this Court held through Mr. Justice Hermogenes Concepcion, Jr. that "It is a well-known and accepted
practice in the business sector that a cashier's check is deemed as cash".
The provisions of law applicable to the case at bar are the following:
a. Article 1249 of the Civil Code which provides:
Art. 1249. 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.
In the meantime, the action derived from the original obligation shall be held in abeyance.;
b. Section 1 of Republic Act No. 529, as amended, which provides:
Sec. 1. Every provision contained in, or made with respect to, any obligation which purports to give
the obligee the right to require payment in gold or in any particular kind of coin or currency other than
Philippine currency or in an amount of money of the Philippines measured thereby, shall be as it is
hereby declared against public policy null and void, and of no effect, and no such provision shall be
contained in, or made with respect to, any obligation thereafter incurred. Every obligation heretofore
and hereafter incurred, whether or not any such provision as to payment is contained therein or made
with respect thereto, shall be discharged upon payment in any coin or currency which at the time of
payment is legal tender for public and private debts.
c. Section 63 of Republic Act No. 265, as amended (Central Bank Act) which provides:
Sec. 63. Legal character — Checks representing deposit money do not have legal tender power and
their acceptance in the payment of debts, both public and private, is at the option of the creditor:
Provided, however, that a check which has been cleared and credited to the account of the creditor
shall be equivalent to a delivery to the creditor of cash in an amount equal to the amount credited to his
account.
From the aforequoted provisions of law, it is clear that this petition must fail.
In the recent cases of Philippine Airlines, Inc. vs. Court of Appeals4 and Roman Catholic Bishop of
Malolos, Inc. vs. Intermediate Appellate Court,5 this Court held that —
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.
The ruling in these two (2) cases merely applies the statutory provisions which lay down the rule that a
check is not legal tender and that a creditor may validly refuse payment by check, whether it be a
manager's, cashier's or personal check.
Petitioners erroneously rely on one of the dissenting opinions in the Philippine Airlines case6 to
support their cause. The dissenting opinion however does not in any way support the contention that a
check is legal tender but, on the contrary, states that "If the PAL checks in question had not been
encashed by Sheriff Reyes, there would be no payment by PAL and, consequently, no discharge or
satisfaction of its judgment obligation."7 Moreover, the circumstances in the Philippine Airlines case
are quite different from those in the case at bar for in that case the checks issued by the judgment
debtor were made payable to the sheriff, Emilio Z. Reyes, who encashed the checks but failed to
deliver the proceeds of said encashment to the judgment creditor.
In the more recent case of Fortunado vs. Court of Appeals,8 this Court stressed that, "We are not, by
this decision, sanctioning the use of a check for the payment of obligations over the objection of the
creditor."
WHEREFORE, the petition is DENIED. The appealed decision is hereby AFFIRMED, with costs
against the petitioners.
SO ORDERED.

Narvasa, C.J., Regalado and Nocon, JJ., concur.