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Contents

GSIS v CA ..................................................................................................................... 3
KAUFFMAN v PNB ........................................................................................................ 7
PHIL EDUC CO v SORIANO ....................................................................................... 11
PAL v CA ..................................................................................................................... 14
SESBRENO v CA ........................................................................................................ 29
TIBAJIA Jr v CA ........................................................................................................... 40
GSIS v CA
Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. L-40824 February 23, 1989

GOVERNMENT SERVICE INSURANCE SYSTEM, petitioner,


vs.
COURT OF APPEALS and MR. & MRS. ISABELO R. RACHO, respondents.

The Government Corporate Counsel for petitioner.

Lorenzo A. Sales for private respondents.

REGALADO , J.:

Private respondents, Mr. and Mrs. Isabelo R. Racho, together with the spouses Mr. and Mrs
Flaviano Lagasca, executed a deed of mortgage, dated November 13, 1957, in favor of petitioner
Government Service Insurance System (hereinafter referred to as GSIS) and subsequently, another
deed of mortgage, dated April 14, 1958, in connection with two loans granted by the latter in the
sums of P 11,500.00 and P 3,000.00, respectively. 1 A parcel of land covered by Transfer Certificate
of Title No. 38989 of the Register of Deed of Quezon City, co-owned by said mortgagor spouses,
was given as security under the aforesaid two deeds. 2 They also executed a 'promissory note"
which states in part:

... for value received, we the undersigned ... JOINTLY, SEVERALLY and
SOLIDARILY, promise to pay the GOVERNMENT SERVICE INSURANCE SYSTEM
the sum of . . . (P 11,500.00) Philippine Currency, with interest at the rate of six (6%)
per centum compounded monthly payable in . . . (120)equal monthly installments of .
. . (P 127.65) each. 3

On July 11, 1961, the Lagasca spouses executed an instrument denominated "Assumption of
Mortgage" under which they obligated themselves to assume the aforesaid obligation to the GSIS
and to secure the release of the mortgage covering that portion of the land belonging to herein
private respondents and which was mortgaged to the GSIS. 4 This undertaking was not fulfilled. 5

Upon failure of the mortgagors to comply with the conditions of the mortgage, particularly the
payment of the amortizations due, GSIS extrajudicially foreclosed the mortgage and caused the
mortgaged property to be sold at public auction on December 3, 1962. 6

More than two years thereafter, or on August 23, 1965, herein private respondents filed a complaint
against the petitioner and the Lagasca spouses in the former Court of

First Instance of Quezon City, 7 praying that the extrajudicial foreclosure "made on, their property and
all other documents executed in relation thereto in favor of the Government Service Insurance
System" be declared null and void. It was further prayed that they be allowed to recover said
property, and/or the GSIS be ordered to pay them the value thereof, and/or they be allowed to
repurchase the land. Additionally, they asked for actual and moral damages and attorney's fees.

In their aforesaid complaint, private respondents alleged that they signed the mortgage contracts not
as sureties or guarantors for the Lagasca spouses but they merely gave their common property to
the said co-owners who were solely benefited by the loans from the GSIS.

The trial court rendered judgment on February 25, 1968 dismissing the complaint for failure to
establish a cause of action. 8

Said decision was reversed by the respondent Court of Appeals 9 which held that:

... although formally they are co-mortgagors, they are so only for accomodation (sic)
in that the GSIS required their consent to the mortgage of the entire parcel of land
which was covered with only one certificate of title, with full knowledge that the loans
secured thereby were solely for the benefit of the appellant (sic) spouses who alone
applied for the loan.

xxxx

'It is, therefore, clear that as against the GSIS, appellants have a valid cause for
having foreclosed the mortgage without having given sufficient notice to them as
required either as to their delinquency in the payment of amortization or as to the
subsequent foreclosure of the mortgage by reason of any default in such payment.
The notice published in the newspaper, 'Daily Record (Exh. 12) and posted pursuant
to Sec 3 of Act 3135 is not the notice to which the mortgagor is entitled upon the
application being made for an extrajudicial foreclosure. ... 10

On the foregoing findings, the respondent court consequently decreed that-

In view of all the foregoing, the judgment appealed from is hereby reversed, and
another one entered (1) declaring the foreclosure of the mortgage void insofar as it
affects the share of the appellants; (2) directing the GSIS to reconvey to appellants
their share of the mortgaged property, or the value thereof if already sold to third
party, in the sum of P 35,000.00, and (3) ordering the appellees Flaviano Lagasca
and Esther Lagasca to pay the appellants the sum of P 10,00.00 as moral damages,
P 5,000.00 as attorney's fees, and costs. 11

The case is now before us in this petition for review.

In submitting their case to this Court, both parties relied on the provisions of Section 29 of Act No.
2031, otherwise known as the Negotiable Instruments Law, which provide that an accommodation
party is one who has signed an instrument as maker, drawer, acceptor of indorser without receiving
value therefor, but is held liable on the instrument to a holder for value although the latter knew him
to be only an accommodation party.

This approach of both parties appears to be misdirected and their reliance misplaced. The
promissory note hereinbefore quoted, as well as the mortgage deeds subject of this case, are clearly
not negotiable instruments. These documents do not comply with the fourth requisite to be
considered as such under Section 1 of Act No. 2031 because they are neither payable to order nor
to bearer. The note is payable to a specified party, the GSIS. Absent the aforesaid requisite, the
provisions of Act No. 2031 would not apply; governance shall be afforded, instead, by the provisions
of the Civil Code and special laws on mortgages.

As earlier indicated, the factual findings of respondent court are that private respondents signed the
documents "only to give their consent to the mortgage as required by GSIS", with the latter having
full knowledge that the loans secured thereby were solely for the benefit of the Lagasca
spouses. 12 This appears to be duly supported by sufficient evidence on record. Indeed, it would be
unusual for the GSIS to arrange for and deduct the monthly amortizations on the loans from the
salary as an army officer of Flaviano Lagasca without likewise affecting deductions from the salary of
Isabelo Racho who was also an army sergeant. Then there is also the undisputed fact, as already
stated, that the Lagasca spouses executed a so-called "Assumption of Mortgage" promising to
exclude private respondents and their share of the mortgaged property from liability to the
mortgagee. There is no intimation that the former executed such instrument for a consideration, thus
confirming that they did so pursuant to their original agreement.

The parol evidence rule 13 cannot be used by petitioner as a shield in this case for it is clear that there
was no objection in the court below regarding the admissibility of the testimony and documents that
were presented to prove that the private respondents signed the mortgage papers just to
accommodate their co-owners, the Lagasca spouses. Besides, the introduction of such evidence
falls under the exception to said rule, there being allegations in the complaint of private respondents
in the court below regarding the failure of the mortgage contracts to express the true agreement of
the parties. 14

However, contrary to the holding of the respondent court, it cannot be said that private respondents
are without liability under the aforesaid mortgage contracts. The factual context of this case is
precisely what is contemplated in the last paragraph of Article 2085 of the Civil Code to the effect
that third persons who are not parties to the principal obligation may secure the latter by pledging or
mortgaging their own property

So long as valid consent was given, the fact that the loans were solely for the benefit of the Lagasca
spouses would not invalidate the mortgage with respect to private respondents' share in the
property. In consenting thereto, even assuming that private respondents may not be assuming
personal liability for the debt, their share in the property shall nevertheless secure and respond for
the performance of the principal obligation. The parties to the mortgage could not have intended that
the same would apply only to the aliquot portion of the Lagasca spouses in the property, otherwise
the consent of the private respondents would not have been required.

The supposed requirement of prior demand on the private respondents would not be in point here
since the mortgage contracts created obligations with specific terms for the compliance thereof. The
facts further show that the private respondents expressly bound themselves as solidary debtors in
the promissory note hereinbefore quoted.

Coming now to the extrajudicial foreclosure effected by GSIS, We cannot agree with the ruling of
respondent court that lack of notice to the private respondents of the extrajudicial foreclosure sale
impairs the validity thereof. In Bonnevie, et al. vs. Court of appeals, et al., 15 the Court ruled that Act
No. 3135, as amended, does not require personal notice on the mortgagor, quoting the requirement
on notice in such cases as follows:

Section 3. Notice shall be given by posting notices of sale for not less than twenty
days in at least three public places of the municipality where the property is situated,
and if such property is worth more than four hundred pesos, such notice shall also be
published once a week for at least three consecutive weeks in a newspaper of
general circulation in the municipality or city.

There is no showing that the foregoing requirement on notice was not complied with in the
foreclosure sale complained of .

The respondent court, therefore, erred in annulling the mortgage insofar as it affected the share of
private respondents or in directing reconveyance of their property or the payment of the value
thereof Indubitably, whether or not private respondents herein benefited from the loan, the mortgage
and the extrajudicial foreclosure proceedings were valid.

WHEREFORE, judgment is hereby rendered REVERSING the decision of the respondent Court of
Appeals and REINSTATING the decision of the court a quo in Civil Case No. Q-9418 thereof.

SO ORDERED.

Melencio-Herrera (Chairperson), Paras, Padilla and Sarmiento, JJ., concur.


KAUFFMAN v PNB
Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. 16454 September 29, 1921

GEORGE A. KAUFFMAN, plaintiff-appellee,


vs.
THE PHILIPPINE NATIONAL BANK, defendant-appellant.

Roman J. Lacson for appellant.


Ross and Lawrence for appellee.

STREET, J.:

At the time of the transaction which gave rise to this litigation the plaintiff, George A. Kauffman, was
the president of a domestic corporation engaged chiefly in the exportation of hemp from the
Philippine Islands and known as the Philippine Fiber and Produce Company, of which company the
plaintiff apparently held in his own right nearly the entire issue of capital stock. On February 5, 1918,
the board of directors of said company, declared a dividend of P100,000 from its surplus earnings for
the year 1917, of which the plaintiff was entitled to the sum of P98,000. This amount was accordingly
placed to his credit on the books of the company, and so remained until in October of the same year
when an unsuccessful effort was made to transmit the whole, or a greater part thereof, to the plaintiff
in New York City.

In this connection it appears that on October 9, 1918, George B. Wicks, treasurer of the Philippine
Fiber and Produce Company, presented himself in the exchange department of the Philippine
National Bank in Manila and requested that a telegraphic transfer of $45,000 should be made to the
plaintiff in New York City, upon account of the Philippine Fiber and Produce Company. He was
informed that the total cost of said transfer, including exchange and cost of message, would be
P90,355.50. Accordingly, Wicks, as treasurer of the Philippine Fiber and Produce Company,
thereupon drew and delivered a check for that amount on the Philippine National Bank; and the
same was accepted by the officer selling the exchange in payment of the transfer in question. As
evidence of this transaction a document was made out and delivered to Wicks, which is referred to
by the bank's assistant cashier as its official receipt. This memorandum receipt is in the following
language:

October 9th, 1918.

CABLE TRANSFER BOUGHT FROM


PHILIPPINE NATIONAL BANK,
Manila, P.I. Stamp P18

Foreign Amount Rate


$45,000. 3/8 % P90,337.50
Payable through Philippine National Bank, New York. To G. A. Kauffman, New York. Total
P90,355.50. Account of Philippine Fiber and Produce Company. Sold to Messrs. Philippine
Fiber and Produce Company, Manila.

(Sgd.) Y LERMA,
Manager, Foreign Department.

On the same day the Philippine National Bank dispatched to its New York agency a cablegram to
the following effect:

Pay George A. Kauffman, New York, account Philippine Fiber Produce Co., $45,000. (Sgd.)
PHILIPPINE NATIONAL BANK, Manila.

Upon receiving this telegraphic message, the bank's representative in New York sent a cable
message in reply suggesting the advisability of withholding this money from Kauffman, in view of his
reluctance to accept certain bills of the Philippine Fiber and Produce Company. The Philippine
National Bank acquiesced in this and on October 11 dispatched to its New York agency another
message to withhold the Kauffman payment as suggested.

Meanwhile Wicks, the treasurer of the Philippine Fiber and Produce Company, cabled to Kauffman
in New York, advising him that $45,000 had been placed to his credit in the New York agency of the
Philippine National Bank; and in response to this advice Kauffman presented himself at the office of
the Philippine National Bank in New York City on October 15, 1918, and demanded the money. By
this time, however, the message from the Philippine National Bank of October 11, directing the
withholding of payment had been received in New York, and payment was therefore refused.

In view of these facts, the plaintiff Kauffman instituted the present action in the Court of First
Instance of the city of Manila to recover said sum, with interest and costs; and judgment having been
there entered favorably to the plaintiff, the defendant appealed.

Among additional facts pertinent to the case we note the circumstance that at the time of the
transaction above-mentioned, the Philippines Fiber and Produce Company did not have on deposit
in the Philippine National Bank money adequate to pay the check for P90,355.50, which was
delivered in payment of the telegraphic order; but the company did have credit to that extent, or
more, for overdraft in current account, and the check in question was charged as an overdraft
against the Philippine Fiber and Produce Company and has remained on the books of the bank as
an interest-bearing item in the account of said company.

It is furthermore noteworthy that no evidence has been introduced tending to show failure of
consideration with respect to the amount paid for said telegraphic order. It is true that in the
defendant's answer it is suggested that the failure of the bank to pay over the amount of this
remittance to the plaintiff in New York City, pursuant to its agreement, was due to a desire to protect
the bank in its relations with the Philippine Fiber and Produce Company, whose credit was secured
at the bank by warehouse receipts on Philippine products; and it is alleged that after the exchange in
question was sold the bank found that it did not have sufficient to warrant payment of the remittance.
In view, however, of the failure of the bank to substantiate these allegations, or to offer any other
proof showing failure of consideration, it must be assumed that the obligation of the bank was
supported by adequate consideration.

In this court the defense is mainly, if not exclusively, based upon the proposition that, inasmuch as
the plaintiff Kauffman was not a party to the contract with the bank for the transmission of this credit,
no right of action can be vested in him for the breach thereof. "In this situation," — we here quote the
words of the appellant's brief, — "if there exists a cause of action against the defendant, it would not
be in favor of the plaintiff who had taken no part at all in the transaction nor had entered into any
contract with the plaintiff, but in favor of the Philippine Fiber and Produce Company, the party which
contracted in its own name with the defendant."

The question thus placed before us is one purely of law; and at the very threshold of the discussion it
can be stated that the provisions of the Negotiable Instruments Law can come into operation there
must be a document in existence of the character described in section 1 of the Law; and no rights
properly speaking arise in respect to said instrument until it is delivered. In the case before us there
was an order, it is true, transmitted by the defendant bank to its New York branch, for the payment of
a specified sum of money to George A. Kauffman. But this order was not made payable "to order or
"to bearer," as required in subsection (d) of that Act; and inasmuch as it never left the possession of
the bank, or its representative in New York City, there was no delivery in the sense intended in
section 16 of the same Law. In this connection it is unnecessary to point out that the official receipt
delivered by the bank to the purchaser of the telegraphic order, and already set out above, cannot
itself be viewed in the light of a negotiable instrument, although it affords complete proof of the
obligation actually assumed by the bank.

Stated in bare simplicity the admitted facts show that the defendant bank for a valuable
consideration paid by the Philippine Fiber and Produce Company agreed on October 9, 1918, to
cause a sum of money to be paid to the plaintiff in New York City; and the question is whether the
plaintiff can maintain an action against the bank for the nonperformance of said undertaking. In other
words, is the lack of privity with the contract on the part of the plaintiff fatal to the maintenance of an
action by him?

The only express provision of law that has been cited as bearing directly on this question is the
second paragraph of article 1257 of the Civil Code; and unless the present action can be maintained
under the provision, the plaintiff admittedly has no case. This provision states an exception to the
more general rule expressed in the first paragraph of the same article to the effect that contracts are
productive of effects only between the parties who execute them; and in harmony with this general
rule are numerous decisions of this court (Wolfson vs. Estate of Martinez, 20 Phil., 340; Ibañez de
Aldecoa vs. Hongkong and Shanghai Banking Corporation, 22 Phil., 572, 584; Manila Railroad
Co. vs. Compañia Trasatlantica and Atlantic, Gulf and Pacific Co., 38 Phil., 873, 894.)

The paragraph introducing the exception which we are now to consider is in these words:

Should the contract contain any stipulation in favor of a third person, he may demand its
fulfillment, provided he has given notice of his acceptance to the person bound before the
stipulation has been revoked. (Art. 1257, par. 2, Civ. Code.)

In the case of Uy Tam and Uy Yet vs. Leonard (30 Phil., 471), is found an elaborate dissertation
upon the history and interpretation of the paragraph above quoted and so complete is the discussion
contained in that opinion that it would be idle for us here to go over the same matter. Suffice it to say
that Justice Trent, speaking for the court in that case, sums up its conclusions upon the conditions
governing the right of the person for whose benefit a contract is made to maintain an action for the
breach thereof in the following words:

So, we believe the fairest test, in this jurisdiction at least, whereby to determine whether the
interest of a third person in a contract is a stipulation pour autrui, or merely an incidental
interest, is to rely upon the intention of the parties as disclosed by their contract.
If a third person claims an enforcible interest in the contract, the question must be settled by
determining whether the contracting parties desired to tender him such an interest. Did they
deliberately insert terms in their agreement with the avowed purpose of conferring a favor
upon such third person? In resolving this question, of course, the ordinary rules of
construction and interpretation of writings must be observed. (Uy Tam and Uy
Yet vs. Leonard, supra.)

Further on in the same opinion he adds: "In applying this test to a stipulation pour autrui, it matters
not whether the stipulation is in the nature of a gift or whether there is an obligation owing from the
promise to the third person. That no such obligation exists may in some degree assist in determining
whether the parties intended to benefit a third person, whether they stipulated for him." (Uy Tam and
Uy Yet vs. Leonard, supra.)

In the light of the conclusion thus stated, the right of the plaintiff to maintain the present action is
clear enough; for it is undeniable that the bank's promise to cause a definite sum of money to be
paid to the plaintiff in New York City is a stipulation in his favor within the meaning of the paragraph
above quoted; and the circumstances under which that promise was given disclose an evident
intention on the part of the contracting parties that the plaintiff should have the money upon demand
in New York City. The recognition of this unqualified right in the plaintiff to receive the money implies
in our opinion the right in him to maintain an action to recover it; and indeed if the provision in
question were not applicable to the facts now before us, it would be difficult to conceive of a case
arising under it.

It will be noted that under the paragraph cited a third person seeking to enforce compliance with a
stipulation in his favor must signify his acceptance before it has been revoked. In this case the
plaintiff clearly signified his acceptance to the bank by demanding payment; and although the
Philippine National Bank had already directed its New York agency to withhold payment when this
demand was made, the rights of the plaintiff cannot be considered to as there used, must be
understood to imply revocation by the mutual consent of the contracting parties, or at least by
direction of the party purchasing he exchange.

In the course of the argument attention was directed to the case of Legniti vs. Mechanics, etc. Bank
(130 N.E. Rep., 597), decided by the Court of Appeals of the State of New York on March 1, 1921,
wherein it is held that, by selling a cable transfer of funds on a foreign country in ordinary course, a
bank incurs a simple contractual obligation, and cannot be considered as holding the money which
was paid for the transfer in the character of a specific trust. Thus, it was said, "Cable transfers,
therefore, mean a method of transmitting money by cable wherein the seller engages that he has the
balance at the point on which the payment is ordered and that on receipt of the cable directing the
transfer his correspondent at such point will make payment to the beneficiary described in the cable.
All these transaction are matters of purchase and sale create no trust relationship."

As we view it there is nothing in the decision referred to decisive of the question now before us, wish
is merely that of the right of the beneficiary to maintain an action against the bank selling the
transfer.

Upon the considerations already stated, we are of the opinion that the right of action exists, and the
judgment must be affirmed. It is so ordered, with costs against the appellant. Interest will be
computed as prescribed in section 510 of the Code of Civil Procedure.

Johnson, Araullo, Avanceña and Villamor, JJ., concur.


PHIL EDUC CO v SORIANO
Republic of the Philippines
SUPREME COURT
Manila

EN BANC

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 the public benefit.

It is to be noted in this connection that some of the restrictions imposed upon money orders by
postal 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 of the Director of Posts of October 26, 1948 (Exhibit 3) to the Bank of America for the
redemption of 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) 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 conditions thus imposed in order to enable the bank to continue enjoying the
facilities theretofore enjoyed by its depositors, were accepted by the Bank of America. The latter is
therefore bound by 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.

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.

WHEREFORE, the appealed decision being in accordance with law, the same is hereby affirmed
with costs.

Concepcion, C.J., Reyes, J.B.L., Makalintal, Zaldivar, Fernando, Teehankee, Barredo and Villamor,
JJ., concur.

Castro and Makasiar, JJ., took no part.


PAL v CA
Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-49188 January 30, 1990

PHILIPPINE AIRLINES, INC., petitioner,


vs.
HON. COURT OF APPEALS, HON. JUDGE RICARDO D. GALANO, Court of First Instance of
Manila, Branch XIII, JAIME K. DEL ROSARIO, Deputy Sheriff, Court of First Instance, Manila,
and AMELIA TAN, respondents.

GUTIERREZ, JR., J.:

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.

The petition involving the alias writ of execution had its beginnings on November 8, 1967, when
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.
On March 28, 1978, motion for the issuance of a partial alias writ of execution was filed by
respondent Amelia Tan.

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 Judge
issued an order which reads:

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

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 thereof. (CA Rollo, p. 34)

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.

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 debt had already been fully satisfied by the petitioner as evidenced by the cash vouchers
signed and receipted by the server of the writ of execution, Deputy Sheriff Emilio Z. Reyes.

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
P64,408.00 as of May 16, 1978. Hence, this petition for certiorari filed by the Philippine Airlines, Inc.,
on the grounds that:

AN ALIAS WRIT OF EXECUTION CANNOT BE ISSUED WITHOUT PRIOR RETURN OF


THE ORIGINAL WRIT BY THE IMPLEMENTING OFFICER.

II

PAYMENT OF JUDGMENT TO THE IMPLEMENTING OFFICER AS DIRECTED IN THE


WRIT OF EXECUTION CONSTITUTES SATISFACTION OF JUDGMENT.

III

INTEREST IS NOT PAYABLE WHEN THE DECISION IS SILENT AS TO THE PAYMENT


THEREOF.

IV

SECTION 5, RULE 39, PARTICULARLY REFERS TO LEVY OF PROPERTY OF


JUDGMENT DEBTOR AND DISPOSAL OR SALE THEREOF TO SATISFY JUDGMENT.
Can an alias writ of execution be issued without a prior return of the original writ by the implementing
officer?

We rule in the affirmative and we quote the respondent court's decision with approval:

The issuance of the questioned alias writ of execution under the circumstances here
obtaining is justified because even with the absence of a Sheriffs return on the original writ,
the unalterable fact 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 cognizance of this circumstance, the order of
May 11, 1978 directing the issuance of an alias writ was 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 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 and over extended period, as had already transpired. (Rollo, pp.
35-36)

Judicium non debet esse illusorium; suum effectum habere debet (A judgment ought not to be
illusory 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.

It should be emphasized that under the initial judgment, Amelia Tan was found to have been
wronged by PAL.

She filed her complaint in 1967.


After ten (10) years of protracted litigation in the Court of First Instance and the Court of Appeals,
Ms. Tan won her case.

It is now 1990.

Almost twenty-two (22) years later, Ms. Tan has not seen a centavo of what the courts have
solemnly declared as rightfully hers. Through absolutely no fault of her own, Ms. Tan has been
deprived of what, technically, she should have been paid from the start, before 1967, without need of
her going to court to enforce her rights. And all because PAL did not issue the checks intended for
her, in her name.

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. We rule against the petitioner.
1âwphi1

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

It is clear and manifest that after levy or garnishment, for a judgment to be executed there is
the requisite of payment by the officer to the judgment creditor, or his attorney, so much of
the proceeds as will satisfy the judgment and none such payment had been concededly
made yet by the absconding Sheriff to the private respondent Amelia Tan. The ultimate and
essential step to complete the execution of the judgment not having been performed by the
City Sheriff, the judgment debt legally and factually remains unsatisfied.

Strictly speaking execution cannot be equated with satisfaction of a judgment. Under unusual
circumstances as those obtaining in this petition, the distinction comes out clearly.

Execution is the process which carries into effect a decree or judgment (Painter v. Berglund, 31 Cal.
App. 2d. 63, 87 P 2d 360, 363; Miller v. London, 294 Mass 300, 1 NE 2d 198, 200; Black's Law
Dictionary), whereas the satisfaction of a judgment is the payment of the amount of the writ, or a
lawful tender thereof, or the conversion by sale of the debtor's property into an amount equal to that
due, and, it may be done otherwise than upon an execution (Section 47, Rule 39). Levy and delivery
by an execution officer are not prerequisites to the satisfaction of a judgment when the same has
already been realized in fact (Section 47, Rule 39). Execution is for the sheriff to accomplish while
satisfaction of the judgment is for the creditor to achieve. Section 15, Rule 39 merely provides the
sheriff with his duties as executing officer including delivery of the proceeds of his levy on the
debtor's property to satisfy the judgment debt. It is but to stress that the implementing officer's duty
should not stop at his receipt of payments but must continue until payment is delivered to the obligor
or creditor.

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
totally supersede the trial court's judgment in Civil Case No. 71307. It merely modified the same as
to the principal amount awarded as actual damages.

WHEREFORE, IN VIEW OF THE FOREGOING, the petition is hereby DISMISSED. The judgment of
the respondent Court of Appeals is AFFIRMED and the trial court's issuance of the alias writ of
execution against the petitioner is upheld without prejudice to any action it should take against the
errant sheriff Emilio Z. Reyes. The Court Administrator is ordered to follow up the actions taken
against Emilio Z. Reyes.

SO ORDERED.

Fernan, C.J., Cruz, Paras, Bidin, Griño-Aquino, Medialdea and Regalado, JJ., concur.

Separate Opinions

NARVASA, J., dissenting:

The execution of final judgments and orders is a function of the sheriff, an officer of the court whose
authority is by and large statutorily determined to meet the particular exigencies arising from or
connected with the performance of the multifarious duties of the office. It is the acknowledgment of
the many dimensions of this authority, defined by statute and chiselled by practice, which compels
me to disagree with the decision reached by the majority.

A consideration of the wide latitude of discretion allowed the sheriff as the officer of the court most
directly involved with the implementation and execution of final judgments and orders persuades me
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.

It is a matter of history that the judiciary .. is an inherit or of the Anglo-American tradition.


While the common law as such .. "is not in force" in this jurisdiction, "to breathe the breath of
life into many of 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 ancient English officer of justice
inferior in rank to an alderman .. appointed to process, keep the King's peace, and put the
laws in execution. From a very remote period in English constitutional history .. the shire had
another officer, namely the shire reeve or as we say, the sheriff. .. The Sheriff was the
special representative of the legal or central authority, and as such usually nominated by the
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).

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.

Did the situation change by PAL's delivery of its two (2) checks totalling P30,000.00 drawn against
its bank account, payable to Sheriff Reyes, for account of the judgment rendered against PAL? I do
not think so, because when Sheriff Reyes encashed the checks, the encashment was in fact a
payment by PAL to Amelia Tan through Sheriff Reyes, an officer of the law authorized to receive
payment, and such payment discharged PAL'S obligation under the executed judgment.

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 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).
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.

Melencio-Herrera, Gancayco, Sarmiento, Cortes, JJ., concurs.

Melencio-Herrera, Gancayco, Sarmiento, Cortes, JJ., concurs.


SESBRENO v CA
Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

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:

PILIPINAS BANK
Makati Stock Exchange Bldg.,
Ayala Avenue, Makati,
Metro Manila

February 9, 1981
———————
VALUE DATE

TO Raul Sesbreño

April 6, 1981
————————
MATURITY DATE

NO. 10805

DENOMINATED CUSTODIAN RECEIPT

This confirms that as a duly Custodian Bank, and upon instruction of PHILIPPINE
UNDERWRITES FINANCE CORPORATION, we have in our custody the following
securities to you [sic] the extent herein indicated.

SERIAL MAT. FACE ISSUED REGISTERED AMOUNT


NUMBER DATE VALUE BY HOLDER PAYEE

2731 4-6-81 2,300,833.34 DMC PHIL. 307,933.33


UNDERWRITERS
FINANCE CORP.

We further certify that these securities may be inspected by you or your duly
authorized representative at any time during regular banking hours.

Upon your written instructions we shall undertake physical delivery of the above
securities fully assigned to you should this Denominated Custodianship Receipt
remain outstanding in your favor thirty (30) days after its maturity.

PILIPINAS BANK
(By Elizabeth De Villa
Illegible Signature)1

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.5The 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:

April 10, 1980

Philippine Underwriters Finance Corp.


Benavidez St., Makati,
Metro Manila.

Attention: Mr. Alfredo O. Banaria


SVP-Treasurer

GENTLEMEN:

This refers to our outstanding placement of P4,601,666.67 as evidenced by your Promissory Note
No. 143-A, dated April 10, 1980, to mature on April 6, 1981.

As agreed upon, we enclose our non-negotiable Promissory Note No. 2730 and 2731 for
P2,000,000.00 each, dated April 10, 1980, to be offsetted [sic] against your PN No. 143-A upon co-
terminal maturity.

Please deliver the proceeds of our PNs to our representative, Mr. Eric Castillo.

Very Truly Yours,

(Sgd.)
Florencio B. Biagan
Senior Vice President13
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.


TIBAJIA Jr v CA
Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

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 Appeals 4 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.