Subject: Negotiable Instruments Law

Topic: Negotiable Instrument is not legal tender

Bank of the Philippine Islands v. Reynaldo and Victoria Royeca

GR No. 176664, July 21, 2008

Facts:
 
Spouses Royeca executed and delivered to Toyota Shaw, Inc. a Promissory
Note, payable in 48 equal monthly installments with a maturity date of
August 18, 1997. To secure the payment of said Promissory Note,
respondents executed a Chattel Mortgage in favor of Toyota over a certain
motor vehicle. Toyota, then, assigned to FEBTC all its rights, title, and interest
in the Chattel Mortgage.
 
Respondents failed to pay 4 monthly amortizations. FEBTC sent a formal
demand. The respondents refused to pay on the ground that they had already
paid their obligation to FEBTC. FEBTC—which later merged with BPI, then,
filed a Complaint for Replevin and Damages. Respondents alleged that they
delivered 8 postdated checks in payment, and that they were not notified that
these checks were dishonored.
 
The MeTC dismissed the case. The RTC set aside the decision of the MeTC. It
found that the respondents failed to discharge this burden because they did
not introduce evidence of payment. The CA set aside the RTC’s decision and
reinstated the MeTC’s decision. It concluded that the respondents introduced
sufficient evidence of payment.

Issue:
 
1.   Whether the tender of checks constitutes payment?
  
SC Ruling:
 
1.   No, it does not constitute payment.
 
The settled ruled is that payment must be made in legal tender. A
check is not legal tender and, therefore, cannot constitute a valid
tender of payment.
 
Since a negotiable instrument is only a substitute for money and not
money, the delivery of such an instrument does not, by itself,
operate as payment. 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. The checks
must be encashed to be considered as payment.