PAYMENT BY MONEY ORDER IS NOT LEGAL TENDER, HOWEVER, WHERE THE

CREDITOR ACCEPTED THE PAYMENT BY MEANS OF ANY NEGOTIABLE

INSTRUMENTS, THE PAYMENT IS EFFECTIVE TO DISCHARGE THE
OBLIGATION

NICANOR GABAON AND TEODORA GOMEZ V AGUSTINA BALAGOT DE AROMIN

AND CATALINO BALAGOT
53 OG NO. 11, 3504
FEBRUARY 25, 1957
ANGELES, J.:

FACTS:
In the year 1939, Balagot executed a real estate mortgage over two parcels of land in favor of
Gabaon as a security of a loan amounting P350, subject to the condition that the mortgagor may
redeem the property at any year, and while the mortgage is subsisting the mortgagees shall have
the possession of the land with right to appropriate for themselves the fruits therefrom. A yearly
payment of P500 was received. The document was destroyed by white ants, so the Balagot
executed another document in private writing which contains the same conditions of the former
mortgage.

In 1942, Balagot bought two postal money orders – P200, and P150 payable to Gabaon at the
postmaster’s office in Candon, Ilocos Sur. According to Balagot, the money orders were sent to
Gabaonin June 1944. However, according to Gabaon, he received it November 1944. Gabaon
testified that he received the money orders but returned the P150 money order because it was not
signed by the postmaster. He did not cash the money orders until the trial because there were no
city treasurer nor postmaster in the municipality of Candon, Ilocos Sur. He also cannot make us
of the money because the guerillas prohibited the use and circulation of Japanese notes.

According to the trial court, a money order not being legal tender did not produce any effect on
the mortgage.

ISSUE:
Whether or not money orders are legal tender?

RULING:
The conclusion of the trial court is palpably erroneous.
Money orders issued by the Bureau of Posts and its branches which is an instrumentality of the
government are fully guaranteed by the government under whose authority that instrumentality
was created and is functioning. Conceding that money order comes under the category of
commercial papers and other negotiable instruments, and therefore, not a legal tender until
collected, in the instant case, the proof is conclusive that the plaintiffs have accepted the money
orders, and through their negligence they failed to collect their equivalent value in the prevailing
legal currency. In light of the provision of Article 1170 of the Civil Code, the loss of the value of
money orders in question must be borne by the plaintiffs whose fault and negligence was the
efficient cause of the loss of the value of the said money orders.