[G.R. No. 141278.

March 23, 2004]

MICHAEL A. OSMEA, petitioner, vs. CITIBANK, N.A., ASSOCIATED
BANK and FRANK TAN, respondents.
D E C I S I O N
CALLEJO, SR., J .:
This is a petition for review on certiorari under Rule 45 of the Rules of
Court, as amended, of the Decision
[1]
of the Court of Appeals in CA-G.R. CV
No. 49529 which affirmed in toto the Decision
[2]
of the Regional Trial Court of
Makati City, Branch 38, in Civil Case No. 91-538.
As culled from the records, the appeal at bench stemmed from the
following factual backdrop:
On February 22, 1991, the petitioner filed with the Regional Trial Court of
Makati an action for damages against the respondents Citibank, N.A. and
Associated Bank.
[3]
The case was docketed as Civil Case No. 91-538. The
complaint materially alleged that, on or about August 25, 1989, the petitioner
purchased from the Citibank Managers Check No. 20-015301 (the check for
brevity) in the amount of P1,545,000 payable to respondent Frank Tan; the
petitioner later received information that the aforesaid managers check was
deposited with the respondent Associated Bank, Rosario Branch, to the
account of a certain Julius Dizon under Savings Account No. 19877; the
clearing and/or payment by the respondents of the check to an improper party
and the absence of any indorsement by the payee thereof, respondent Frank
Tan, is a clear violation of the respondents obligations under the Negotiable
Instruments Law and standard banking practice; considering that the
petitioners intended payee for the check, the respondent Frank Tan, did not
receive the value thereof, the petitioner demanded from the respondents
Citibank and the Associated Bank the payment or reimbursement of the value
of the check; the respondents, however, obstinately refused to heed his
repeated demands for payment and/or reimbursement of the amount of the
check; hence, the petitioner was compelled to file this complaint praying for
the restitution of the amount of the check, and for moral damages and
attorneys fees.
On June 17, 1991, the petitioner, with leave of court, filed an Amended
Complaint
[4]
impleading Frank Tan as an additional defendant. The petitioner
averred therein that the check was purchased by him as a demand loan to
respondent Frank Tan. Since apparently respondent Frank Tan did not
receive the proceeds of the check, the petitioner might have no right to collect
from respondent Frank Tan and is consequently left with no recourse but to
seek payment or reimbursement from either or both respondents Citibank
and/or Associated Bank.
In its answer to the amended complaint,
[5]
the respondent Associated Bank
alleged that the petitioner was not the real party-in-interest but respondent
Frank Tan who was the payee of the check. The respondent also maintained
that the check was deposited to the account of respondent Frank Tan, a.k.a.
Julius Dizon, through its Ayala Head Office and was credited to the savings
account of Julius Dizon; the Ayala office confirmed with the Rosario Branch
that the account of Julius Dizon is also in reality that of respondent Frank Tan;
it never committed any violation of its duties and responsibilities as the
proceeds of the check went and was credited to respondent Frank Tan, a.k.a.
Julius Dizon; the petitioners affirmative allegation of non-payment to the
payee is self-serving; as such, the petitioners claim for damages is baseless,
unfounded and without legal basis.
On the other hand, the respondent Citibank, in answer to the amended
complaint,
[6]
alleged that the payment of the check was made by it in due
course and in the exercise of its regular banking function. Since a managers
check is normally purchased in favor of a third party, the identity of whom in
most cases is unknown to the issuing bank, its only responsibility when paying
the check was to examine the genuineness of the check. It had no way of
ascertaining the genuineness of the signature of the payee respondent Frank
Tan who was a total stranger to it. If at all, the petitioner had a cause of action
only against the respondent Associated Bank which, as depository or
collecting bank, was obliged to make sure that the check in question was
properly endorsed by the payee. It is not expected of the respondent Citibank
to ascertain the genuineness of the indorsement of the payee or even the lack
of indorsement by him, most especially when the check was presented for
payment with the respondent Associated Banks guaranteeing all prior
indorsements or lack thereof.
On March 16, 1992, the trial court declared Frank Tan in default for failure
to file his answer.
[7]
On June 10, 1992, the pre-trial conference was concluded
without the parties reaching an amicable settlement.
[8]
Hence, trial on the
merits ensued.
After evaluating the evidence adduced by the parties, the trial court
resolved that the preponderance of evidence supports the claim of the
petitioner as against respondent Frank Tan only but not against respondents
Banks. Hence, on February 21, 1995, the trial court rendered judgment in
favor of the petitioner and against respondent Frank Tan. The complaints
against the respondents Banks were dismissed. The dispositive portion of the
decision reads:
WHEREFORE, judgment is hereby rendered as follows :
1. Ordering defendant Frank Tan to pay plaintiff Michael Osmea the amount of One
Million Five Hundred Forty-Five Thousand (P1,545,000.00) Pesos, Philippine
Currency, with interest thereon at 12% per annum from January 1990, date of extra-
judicial demand until the full amount is paid;
2. Dismissing the complaint against defendants Citibank and Associated Bank;
3. Dismissing the counter-claims and the cross-claim of Citibank against Associated
Bank for lack of merit.
With costs against defendant Frank Tan.
[9]

The petitioner appealed the decision,
[10]
while respondent Frank Tan did
not. On November 26, 1999, the appellate court rendered judgment
affirming in toto the decision of the trial court. Aggrieved, the petitioner
assailed the decision in his petition at bar.
The petitioner contends that:
I. RESPONDENT COURT ERRED IN NOT HOLDING CITIBANK AND ASSOCIATED
BANK LIABLE TO PETITIONER FOR THE ENCASHMENT OF CITIBANK
MANAGERS CHECK NO. 20015301 BY JULIUS DIZON.
II. RESPONDENT COURT ERRED IN HOLDING THAT FRANK TAN AND JULIUS
DIZON ARE ONE AND THE SAME PERSON.
III. THE IDENTITY OF FRANK TAN AS JULIUS DIZON WAS KNOWN ONLY TO
ASSOCIATED BANK AND WAS NOT BINDING ON PETITIONER.
[11]

The petition is denied.
The petitioner asserts that the check was payable to the order of
respondent Tan. However, the respondent Associated Bank ordered the
check to be deposited to the account of one Julius Dizon, although the check
was not endorsed by respondent Tan. As Julius Dizon was not a holder of the
check in due course, he could not validly negotiate the check. The latter was
not even a transferee in due course because respondent Tan, the payee, did
not endorse the said check. The position of the respondent Bank is akin to
that of a bank accepting a check for deposit wherein the signature of the
payee or endorsee has been forged.
The contention of the petitioner does not hold water.
The fact of the matter is that the check was endorsed by Julius Dizon
and was deposited and credited to Savings Account No. 19877 with the
respondent Associated Bank. But the evidence on record shows that the said
account was in the name of Frank Tan Guan Leng, which is the Chinese
name of the respondent Frank Tan, who also uses the alias Julius Dizon. As
correctly ruled by the Court of Appeals:
On the other hand, Associated satisfactorily proved that Tan is using and is also
known by his alias of Julius Dizon. He signed the Agreement On Bills
Purchased (Exh. 1) and Continuing Suretyship Agreement (Exh. 2) both
acknowledged on January 16, 1989, where his full name is stated to be FRANK Tan
Guan Leng (aka JULIUS DIZON). Exh. 1 also refers to his Account No.
SA#19877, the very same account to which the P1,545,000.00 from the managers
check was deposited. Osmea countered that such use of an alias is illegal. That is
but an irrelevant casuistry that does not detract from the fact that the payee Tan as
Julius Dizon has encashed and deposited the P1,545,000.00.
[12]

The respondent Associated Bank presented preponderant evidence to
support its assertion that respondent Tan, the payee of the check, did receive
the proceeds of the check. It adduced evidence that Julius Dizon and Frank
Tan are one and the same person. Respondent Tan was a regular and
trusted client or depositor of the respondent Associated Bank in its branch at
Rosario, Binondo, Manila. As such, respondent Tan was allowed to maintain
two (2) savings accounts therein.
[13]
The first is Savings Account No. 20161-3
under his name Frank Tan.
[14]
The other is Savings Account No. 19877 under
his assumed Filipino name Julius Dizon,
[15]
to which account the check was
deposited in the instant case. Both witnesses for the respondent Associated
Bank, Oscar Luna (signature verifier) and Luz Lagrimas (new accounts clerk),
testified that respondent Tan was using the alias Julius Dizon, and that both
names referred to one and the same person, as Frank Tan himself regularly
transacted business at the bank under both names.
[16]
This is also evidenced
by the Agreement on Bills Purchased
[17]
and the Continuing Suretyship
Agreement
[18]
executed between Frank Tan and the respondent Associated
Bank on January 16, 1989. Frank Tans name appears in said document as
FRANK TAN GUAN LENG (a.k.a. JULIUS DIZON).
[19]
The same documentary
evidence also made reference to Savings Account No. 19877,
[20]
the very same
account to which the check was deposited and the entire P1,545,000 was
credited. Additionally, Citibank Check No. 075713
[21]
which was presented by
the petitioner to prove one of the loans previously extended to respondent Tan
showed that the endorsement of respondent Tan at the dorsal side thereof
[22]
is
strikingly similar to the signatures of Frank Tan appearing in said
agreements.
By seeking to recover the loan from respondent Tan, the petitioner
admitted that respondent Tan received the amount of the check. This
apprehension was not without any basis at all, for after the petitioner
attempted to communicate with respondent Tan on January or February 1990,
demanding payment for the loan, respondent Tan became elusive of the
petitioner.
[23]
As a matter of fact, respondent Tan did not file his answer to the
amended complaint and was never seen or heard of by the
petitioner.
[24]
Besides, if it were really a fact that respondent Tan did not
receive the proceeds of the check, he could himself have initiated the instant
complaint against respondents Banks, or in the remotest possibility, joined the
petitioner in pursuing the instant claim.
The petitioner initially sought to recover from the respondents Banks the
amount of P1,545,000 corresponding to the loan obtained by respondent Tan
from him, obviously because respondent Tan had no intent to pay the
amount. The petitioner alleges that the respondents Banks were negligent in
paying the amount to a certain Julius Dizon, in relation to the pertinent
provisions of the Negotiable Instruments Law, without the proper indorsement
of the payee, Frank Tan. The petitioner cites the ruling of the Court
in Associated Bank v. Court of Appeals,
[25]
in which we outlined the respective
responsibilities and liabilities of a drawee bank, such as the respondent
Citibank, and a collecting bank, such as the defendant Associated Bank, in
the event that payment of a check to a person not designated as the payee, or
who is not a holder in due course, had been made. However, the ruling of the
Court therein does not apply to the present case for, as has been amply
demonstrated, the petitioner failed to establish that the proceeds of the check
was indeed wrongfully paid by the respondents Banks to a person other than
the intended payee. In addition, the Negotiable Instruments Law was enacted
for the purpose of facilitating, not hindering or hampering transactions in
commercial paper. Thus, the said statute should not be tampered with
haphazardly or lightly. Nor should it be brushed aside in order to meet the
necessities in a single case.
[26]

Moreover, the chain of events following the purported delivery of the check
to respondent Tan renders even more dubious the petitioners claim that
respondent Tan had not received the proceeds of the check. Thus, the
petitioner never bothered to find out from the said respondent whether the
latter received the check from his messenger. And if it were to be supposed
that respondent Tan did not receive the check, given that his need for the
money was urgent, it strains credulity that respondent Tan never even made
an effort to get in touch with the petitioner to inform the latter that he did not
receive the check as agreed upon, and to inquire why the check had not been
delivered to him. The petitioner and respondent Tan saw each other during
social gatherings but they never took the chance to discuss details on the loan
or the check.
[27]
Their actuations are not those to be usually expected of friends
of 15 years who, as the petitioner would want to impress upon this Court,
were transacting business on the basis of confidence.
[28]
In fact, the first time
that the petitioner attempted to communicate with respondent Tan was on
January or February 1990, almost five or six months after the expected
delivery of the check, for the purpose of demanding payment for the
loan. And it was only on that occasion that respondent Tan, as the petitioner
insinuates, informed him that he (Frank Tan) had not received the proceeds of
the check and refused to pay his loan.
[29]
All told, the petitioners allegation that
respondent Tan did not receive the proceeds of the check
[30]
is belied by the
evidence on record and attendant circumstances.
Conversely, the records would disclose that even the petitioner himself
had misgivings about the truthfulness of his allegation that respondent Tan did
not receive the amount of the check. This is made implicit by respondent
Tans being made a party-defendant to the case when the petitioner filed his
amended complaint. In his memorandum in the case below, the petitioner
averred inter alia that:
The amount of P1,545,000.00 is sought to be recovered from:
1. Frank Tan for his failure to pay the loan extended by plaintiff; and
2. Associated Bank and Citibank for having accepted for deposit and/or paid the
Citibank managers check despite the absence of any signature/endorsement by the
named payee, Frank Tan.
The claim of the petitioner that respondent Tans use of an alias is illegal
does not detract a whit from the fact that respondent Tan had been credited
by the respondent Associated Bank for the amount of the check. Respondent
Tan did not appeal the decision of the RTC.
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The
Decision dated November 26, 1999 of the Court of Appeals in CA-G.R. CV
No. 49529 is hereby AFFIRMED. Costs against the petitioner.
SO ORDERED.


[G.R. No. 120639. September 25, 1998]
BPI EXPRESS CARD CORPORATION, petitioner, vs. COURT OF
APPEALS and RICARDO J. MARASIGAN, respondents.
D E C I S I O N
KAPUNAN, J .:
The question before this Court is whether private respondent can recover moral damages
arising from the cancellation of his credit card by petitioner credit card corporation.
The facts of the case are as stated in the decision of the respondent court,
[1]
to wit:
The case arose from the dishonor of the credit card of the plaintiff Atty.
Ricardo J. Marasigan by Cafe Adriatico, a business establishment accredited
with the defendant-appellant BPI Express Card Corporation (BECC for
brevity) on December 8, 1989 when the plaintiff entertained some guests
thereat.
The records of this case show that plaintiff, who is a lawyer by profession was
a complimentary member of BECC from February 1988 to February 1989 and
was issued Credit Card No. 100-012-5534 with a credit limit of P3,000.00 and
with a monthly billing every 27th of the month (Exh. N), subject to the terms
and conditions stipulated in the contract (Exh. 1-b). His membership was
renewed for another year or until February 1990 and the credit limit was
increased to P5,000.00 (Exh. A). The plaintiff oftentimes exceeded his credit
limits (Exhs. I, I-1 to I-12) but this was never taken against him by the
defendant and even his mode of paying his monthly bills in check was
tolerated. Their contractual relations went on smoothly until his statement of
account for October, 1989 amounting to P8,987.84 was not paid in due
time. The plaintiff admitted having inadvertently failed to pay his account for
the said month because he was in Quezon province attending to some
professional and personal commitments. He was informed by his secretary
that defendant was demanding immediate payment of his outstanding account,
was requiring him to issue a check forP15,000.00 which would include his
future bills, and was threatening to suspend his credit card. Plaintiff issued Far
East Bank and Trust Co. Check No. 494675 in the amount of P15,000.00,
postdated December 15, 1989 which was received on November 23, 1989 by
Tess Lorenzo, an employee of the defendant (Exhs. J and J-1), who in turn
gave the said check to Jeng Angeles, a co-employee who handles the account
of the plaintiff. The check remained in the custody of Jeng Angeles. Mr.
Roberto Maniquiz, head of the collection department of defendant was
formally informed of the postdated check about a week later. On November
28, 1989, defendant served plaintiff a letter by ordinary mail informing him of
the temporary suspension of the privileges of his credit card and the inclusion
of his account number in their Caution List. He was also told to refrain from
further use of his credit card to avoid any inconvenience/embarrassment and
that unless he settles his outstanding account with the defendant within 5 days
from receipt of the letter, his membership will be permanently cancelled (Exh.
3). There is no showing that the plaintiff received this letter before December
8, 1989. Confident that he had settled his account with the issuance of the
postdated check, plaintiff invited some guests on December 8, 1989 and
entertained them at Caf Adriatico. When he presented his credit card to Caf
Adriatico for the bill amounting to P735.32, said card was dishonored. One of
his guests, Mary Ellen Ringler, paid the bill by using her own credit card, a
Unibankard (Exhs. M, M-1 and M-2).
In a letter addressed to the defendant dated December 12, 1989, plaintiff
requested that he be sent the exact billing due him as of December 15, 1989, to
withhold the deposit of his postdated check and that said check be returned to
him because he had already instructed his bank to stop the payment thereof as
the defendant violated their agreement that the plaintiff issue the check to the
defendant to cover his account amounting to only P8,987.84 on the condition
that the defendant will not suspend the effectivity of the card (Exh. D). A
letter dated December 16, 1989 was sent by the plaintiff to the manager of
FEBTC, Ramada Branch, Manila requesting the bank to stop the payment of
the check (Exhs. E, E-1). No reply was received by plaintiff from the
defendant to his letter dated December 12, 1989. Plaintiff sent defendant
another letter dated March 12, 1990 reminding the latter that he had long
rescinded and cancelled whatever arrangement he entered into with defendant
and requesting for his correct billing, less the improper charges and penalties,
and for an explanation within five (5) days from receipt thereof why his card
was dishonored on December 8, 1989 despite assurance to the contrary by
defendant's personnel-in-charge, otherwise the necessary court action shall be
filed to hold defendant responsible for the humiliation and embarrassment
suffered by him (Exh. F). Plaintiff alleged further that after a few days, a
certain Atty. Albano, representing himself to be working with office of Atty.
Lopez, called him inquiring as to how the matter can be threshed out
extrajudicially but the latter said that such is a serious matter which cannot be
discussed over the phone. The defendant served its final demand to the
plaintiff dated March 21, 1990 requiring him to pay in full his overdue
account, including stipulated fees and charges, within 5 days from receipt
thereof or face court action also to replace the postdated check with cash
within the same period or face criminal suit for violation of the Bouncing
Check Law (Exh. G/Exh. 13). The plaintiff, in a reply letter dated April 5,
1990 (Exh. H), demanded defendant's compliance with his request in his first
letter dated March 12, 1990 within three (3) days from receipt, otherwise the
plaintiff will file a case against them, x x x.
[2]

Thus, on May 7, 1990 private respondent filed a complaint for damages against petitioner
before the Regional Trial Court of Makati, Branch 150, docketed as Civil Case No. 90-1174.
After trial, the trial court ruled for private respondent, finding that herein petitioner abused
its right in contravention of Article 19 of the Civil Code.
[3]
The dispositive portion of the decision
reads:
Wherefore, judgment is hereby rendered ordering the defendant to pay plaintiff
the following:
1. P100,000.00 as moral damages;
2. P50,000.00 as exemplary damages; and
3. P20,000.00 by way of attorney's fees.
On the other hand, plaintiff is ordered to pay defendant its outstanding
obligation in the amount of P14,439.41, amount due as of December 15,
1989.
[4]

The trial court's ruling was based on its findings and conclusions, to wit:
There is no question that plaintiff had been in default in the payment of his
billings for more than two months, prompting defendant to call him and
reminded him of his obligation. Unable to personally talk with him, this Court
is convinced that somehow one or another employee of defendant called him
up more than once.
However, while it is true that, as indicated in the terms and conditions of the
application for BPI credit card, upon failure of the cardholder to pay his
outstanding obligation for more than thirty (30) days, the defendant can
automatically suspend or cancel the credit card, that reserved right should not
have been abused, as it was in fact abused, in plaintiff's case. What is more
peculiar here is that there have been admitted communications between
plaintiff and defendant prior to the suspension or cancellation of plaintiff's
credit card and his inclusion in the caution list. However, nowhere in any of
these communications was there ever a hint given to plaintiff that his card had
already been suspended or cancelled. In fact, the Court observed that while
defendant was trying its best to persuade plaintiff to update its account and pay
its obligation, it had already taken steps to suspend/cancel plaintiff's card and
include him in the caution list. While the Court admires defendant's
diplomacy in dealing with its clients, it cannot help but frown upon the
backhanded way defendant dealt with plaintiff's case. For despite Tess
Lorenzo's denial, there is reason to believe that plaintiff was indeed assured by
defendant of the continued honoring of his credit card so long as he pays his
obligation of P15,000.00. Worst, upon receipt of the postdated check,
defendant kept the same until a few days before it became due and said check
was presented to the head of the collection department, Mr. Maniquiz, to take
steps thereon, resulting to the embarrassing situation plaintiff found himself in
on December 8, 1989. Moreover, Mr. Maniquiz himself admitted that his
request for plaintiff to replace the check with cash was not because it was a
postdated check but merely to tally the payment with the account due.
Likewise, the Court is not persuaded by the sweeping denials made by Tess
Lorenzo and her claim that her only participation was to receive the subject
check. Her immediate superior, Mr. Maniquiz testified that he had instructed
Lorenzo to communicate with plaintiff once or twice to request the latter to
replace the questioned check with cash, thus giving support to the testimony of
plaintiff's witness, Dolores Quizon, that it was one Tess Lorenzo who she had
talked over the phone regarding plaintiff's account and plaintiff's own
statement that it was this woman who assured him that his card has not yet
been and will not be cancelled/suspended if he would pay defendant the sum
of P15,000.00.
Now, on the issue of whether or not upon receipt of the subject check,
defendant had agreed that the card shall remain effective, the Court takes note
of the following:
1. An employee of defendant corporation unconditionally accepted the subject check
upon its delivery, despite its being a postdated one; and the amount did not tally with
plaintiff's obligation;
2. Defendant did not deny nor controvert plaintiff's claim that all his payments were
made in checks;
3. Defendant's main witness, Mr. Maniquiz, categorically stated that the request for
plaintiff to replace his postdated check with cash was merely for the purpose of
tallying plaintiff's outstanding obligation with his payment and not to question the
postdated check;
4. That the card was suspended almost a week after receipt of the postdated check;
5. That despite the many instances that defendant could have informed plaintiff over
the phone of the cancellation or suspension of his credit card, it did not do so, which
could have prevented the incident of December 8, 1989, the notice allegedly sent thru
ordinary mail is not only unreliable but takes a long time. Such action as suspension
of credit card must be immediately relayed to the person affected so as to avoid
embarrassing situations.
6. And that the postdated check was deposited on December 20, 1989.
In view of the foregoing observations, it is needless to say that there was
indeed an arrangement between plaintiff and the defendant, as can be inferred
from the acts of the defendant's employees, that the subject credit card is still
good and could still be used by the plaintiff as it would be honored by the duly
accredited establishment of defendant.
[5]

Not satisfied with the Regional Trial Court's decision, petitioner appealed to the Court of
Appeals, which, in a decision promulgated on March 9, 1995 ruled in its dispositive portion:
WHEREFORE, premises considered, the decision appealed from is hereby
AFFIRMED with the MODIFICATION that the defendant-appellant shall pay
the plaintiff-appellee the following: P50,000.00 as moral damages; P25,000.00
as exemplary damages; and P10,000.00 by way of attorney's fees.
SO ORDERED.
[6]

Hence, the present petition on the following assignment of errors:
I
THE LOWER COURT ERRED IN DECLARING THAT THERE WAS
INDEED AN AGREEMENT OR ARRANGEMENT ENTERED INTO
BETWEEN THE PARTIES WHEREIN THE DEFENDANT REQUIRED
THE PLAINTIFF TO ISSUE A POSTDATED CHECK IN ITS FAVOR IN
THE AMOUNT OF P15,000.00 AS PAYMENT FOR HIS OVERDUE
ACCOUNTS, WITH THE CONDITION THAT THE PLAINTIFF'S CREDIT
CARD WILL NOT BE SUSPENDED OR CANCELLED.
II
THE LOWER COURT ERRED IN HOLDING DEFENDANT LIABLE FOR
DAMAGES AND ATTORNEY'S FEES ARISING OUT FROM THE
DISHONOR OF THE PLAINTIFF'S CREDIT CARD.
[7]

We find the petition meritorious.
The first issue to be resolved is whether petitioner had the right to suspend the credit card of
the private respondent.
Under the terms and conditions of the credit card, signed by the private respondent, any card
with outstanding balances after thirty (30) days from original billing/statement shall
automatically be suspended, thus:
PAYMENT OF CHARGES - BECC shall furnish the Cardholder a monthly
statement of account made through the use of the CARD and the Cardholder
agrees that all charges made through the use of the CARD shall be paid by the
Cardholder on or before the last day for payments, which is twenty (20) days
from the date of the said statement of account, and such payment due date
may be changed to an earlier date if the Cardholder's account is considered
overdue and/or with balances in excess of the approved credit limit; or to such
other date as may be deemed proper by the CARD issuer with notice to the
Cardholder on the same monthly statement of account. If the last day for
payment falls on a Saturday, Sunday or Holiday, the last day for payment
automatically becomes the last working day prior to said payment
date. However, notwithstanding the absence or lack of proof of service of the
statement of charges to the Cardholder, the latter shall pay any or all charges
made through the use of the CARD within thirty (30) days from the date or
dates thereof. Failure of Cardholder to pay any and all charges made through
the CARD within the payment period as stated in the statement of charges or
within thirty (30) days from actual date or dates whichever occur earlier, shall
render him in default without the necessity of demand from BECC, which the
Cardholder expressly waives. These charges or balance thereof remaining
unpaid after the payment due date indicated on the monthly statement of
account shall bear interest at the rate of 3% per month and an additional
penalty fee equivalent to another 3% of the amount due for every month or a
fraction of a month's delay. PROVIDED, that if there occurs any change on
the prevailing market rates. BECC shall have the option to adjust the rate of
interest and/or penalty fee due on the outstanding obligation with prior notice
to the Cardholder.
xxx xxx xxx
Any CARD with outstanding balances unpaid after thirty (30) days from
original billing/statement date shall automatically be suspended, and those
with accounts unpaid after sixty (60) days from said original billing/statement
date shall automatically be cancelled, without prejudice to BECC's right to
suspend or cancel any CARD any time and for whatever reason. In case of
default in his obligation as provided for in the preceding paragraph,
Cardholder shall surrender his CARD to BECC and shall in addition to the
interest and penalty charges aforementioned, pay the following liquidated
damages and/or fees (a) a collection fee of 25% of the amount due if the
account is referred to a collection agency or attorney; (b) a service fee of P100
for every dishonored check issued by the Cardholder in payment of his
account, with prejudice, however, to BECC's right of considering Cardholder's
obligation unpaid, cable cost for demanding payment or advising cancellation
of membership shall also be for Cardholder's account; and (c) a final fee
equivalent to 25% of the unpaid balance, exclusive of litigation expenses and
judicial costs, if the payment of the account is enforced through court action.
[8]

The aforequoted provision of the credit card cannot be any clearer. By his own admission,
private respondent made no payment within thirty days for his original billing/statement dated 27
September 1989. Neither did he make payment for his original billing/statement dated 27
October 1989. Consequently, as early as 28 October 1989, thirty days from the non-payment of
his billing dated 27 September 1989, petitioner corporation could automatically suspend his
credit card.
The next issue is whether prior to the suspension of private respondent's credit card on 28
November 1989, the parties entered into an agreement whereby the card could still be used and
would be duly honored by duly accredited establisments.
We agree with the findings of the respondent court, that there was an arrangement between
the parties, wherein the petitioner required the private respondent to issue a check worth P15,000
as payment for the latter's billings. However, we find that the private respondent was not able to
comply with his obligation.
As the testimony of private respondent himself bears out, the agreement was for the
immediate payment of the outstanding account:
Q In said statement of account that you are supposed to pay the P8,974.84 the charge of interest and
penalties, did you note that?
A Yes, sir. I noted the date.
Q When?
A When I returned from the Quezon province, sir.
Q When?
A I think November 22, sir.
Q So that before you used again the credit card you were not able to pay immediately this P8,987.84
in cash?
A I paid P15,000.00, sir.
Q My question Mr. Witness is, did you pay this P8,987.84 in charge of interest and penalties
immediately in cash?
A In cash no, but in check, sir.
Q You said that you noted the word "immediately" in bold letters in your statement of account, why
did you not pay immediately?
A Because I received that late, sir.
Q Yes, on November 22 when you received from the secretary of the defendant telling you to pay
the principal amount of P8,987.84, why did you not pay?
A There was a communication between me and the defendant, I was required to pay P8,000.00 but I
paid in check for P15,000.00, sir.
Q Do you have any evidence to show that the defendant required you to pay in check
for P15,000.00?
A Yes, sir.
Q Where is it?
A It was by telecommunication, sir.
Q So there is no written communication between you and the defendant?
A There was none, sir.
Q There is no written agreement which says that P8,987.84 should be paid for P15,000.00 in check,
there is none?
A Yes, no written agreement, sir.
Q And you as a lawyer you know that a check is not considered as cash specially when it is
postdated sent to the defendant?
A That is correct, sir.
Clearly, the purpose of the arrangement between the parties on November 22, 1989, was for
the immediate payment of the private respondent's outstanding account, in order that his credit
card would not be suspended.
As agreed upon by the parties, on the following day, private respondent did issue a check
for P15,000. However, the check was postdated 15 December 1989. Settled is the doctrine that
a check is only a substitute for money and not money, the delivery of such an instrument does
not, by itself operate as payment.
[9]
This is especially true in the case of a postdated check.
Thus, the issuance by the private respondent of the postdated check was not effective
payment. It did not comply with his obligation under the arrangement with Miss
Lorenzo. Petitioner corporation was therefore justified in suspending his credit card.
Finally, we find no legal and factual basis for private respondent's assertion that in canceling
the credit card of the private respondent, petitioner abused its right under the terms and
conditions of the contract.
To find the existence of an abuse of right under Article 19 the following elements must be
present: (1) There is a legal right or duty; (2) which is exercised in bad faith; (3) for the sole
intent of prejudicing or injuring another.
[10]

Time and again this Court has held that good faith is presumed and the burden of proving
bad faith is on the party alleging it.
[11]
This private respondent failed to do. In fact, the action of
the petitioner belies the existence of bad faith. As early as 28 October 1989, petitioner could
have suspended private respondent's card outright. Instead, petitioner allowed private respondent
to use his card for several weeks. Petitioner had even notified private respondent of the
impending suspension of his credit card and made special accommodations for him for settling
his outstanding account. As such, petitioner cannot be said to have capriciously and arbitrarily
canceled the private respondent's credit card.
We do not dispute the findings of the lower court that private respondent suffered damages
as a result of the cancellation of his credit card. However, there is a material distinction between
damages and injury. Injury is the illegal invasion of a legal right; damage is the loss, hurt, or
harm which results from the injury; and damages are the recompense or compensation awarded
for the damage suffered. Thus, there can be damage without injury in those instances in which
the loss or harm was not the result of a violation of a legal duty. In such cases, the consequences
must be borne by the injured person alone, the law affords no remedy for damages resulting from
an act which does not amount to a legal injury or wrong. These situations are often
called damnum absque injuria.
[12]

In other words, in order that a plaintiff may maintain an action for the injuries of which he
complains, he must establish that such injuries resulted from a breach of duty which the
defendant owed to the plaintiff - a concurrence of injury to the plaintiff and legal responsibility
by the person causing it. The underlying basis for the award of tort damages is the premise that
an individual was injured in contemplation of law. Thus, there must first be a breach of some
duty and the imposition of liability for that breach before damages may be awarded;
[13]
and the
breach of such duty should be the proximate cause of the injury.
We therefore disagree with the ruling of the respondent court that the dishonor of the credit
card of the private respondent by Caf Adriatico is attributable to petitioner for its willful or
gross neglect to inform the private respondent of the suspension of his credit card, the
unfortunate consequence of which brought social humiliation and embarrassment to the private
respondent.
[14]

It was petitioner's failure to settle his obligation which caused the suspension of his credit
card and subsequent dishonor at Caf Adriatico. He can not now pass the blame to the petitioner
for not notifying him of the suspension of his card. As quoted earlier, the application contained
the stipulation that the petitioner could automatically suspend a card whose billing has not been
paid for more than thirty days. Nowhere is it stated in the terms and conditions of the application
that there is a need of notice before suspension may be effected as private respondent claims.
[15]

This notwithstanding, on November 28, 1989, the day of the suspension of private
respondent's card, petitioner sent a letter by ordinary mail notifying private respondent that his
card had been temporarily suspended. Under the Rules on Evidence, there is a disputable
presumption that letters duly directed and mailed were received on the regular course of
mail.
[16]
Aside from the private respondent's bare denial, he failed to present evidence to rebut the
presumption that he received said notice. In fact upon cross examination, private respondent
admitted that he did received the letter notifying him of the cancellation:
Q Now you were saying that there was a first letter sent to you by the defendant?
A Your letter, sir.
Q Was that the first letter that you received?
A Yes, sir.
Q Is it that there was a communication first between you and the defendant?
A There was none, sir. I received a cancellation notice but that was after November 27.
[17]

As it was private respondent's own negligence which was the proximate cause of his
embarrassing and humiliating experience, we find the award of damages by the respondent court
clearly unjustified. We take note of the fact that private respondent has not yet paid his
outstanding account with petitioner.
IN VIEW OF THE FOREGOING, the decision of the Court of Appeals ordering
petitioner to pay private respondent P100,000.00 as moral damages, P50,000.00 as exemplary
damages andP20,000.00 as attorney's fees, is SET ASIDE. Private respondent is DIRECTED to
pay his outstanding obligation with the petitioner in the amount of P14,439.41.
SO ORDERED.
Narvasa, C.J., (Chairman), and Romero, J., concur.
Purisima, J., no part, being signatory to CA decision.


G.R. No. 72110. November 16, 1990.*
ROMAN CATHOLIC BISHOP OF MALOLOS, INC., petitioner, vs. INTERMEDIATE APPELLATE COURT, and ROBES-FRANCISCO REALTY AND DEVELOPMENT
CORPORATION, respondents.
PETITION for certiorari to review the decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Rodrigo Law Office for petitioner.
Antonio P. Barredo and Napoleon M. Malinas for private respondent.

SARMIENTO, J.:

This is a petition for review on certiorari which seeks the reversal and setting aside of the decision1 of the Court of Appeals,2 the dispositive portion of
which reads:
WHEREFORE, the decision appealed from is hereby reversed
2 AC-G.R. CV No. 69626, Robes-Francisco Realty & Development Corporation vs. Roman Catholic Bishop of Malolos, Inc. and set aside and another one
entered for the plaintiff ordering the defendant-appellee Roman Catholic Bishop of Malolos, Inc. to accept the balance of P124,000.00 being paid by
plaintiff-appellant and thereafter to execute in favor of Robes-Francisco Realty Corporation a registerable Deed of Absolute Sale over 20,655 square
meters portion of that parcel of land situated in San Jose del Monte, Bulacan described in OCT No. 575 (now Transfer Certificates of Title Nos. T-169493,
169494, 169495 and 169496) of the Register of Deeds of Bulacan. In case of refusal of the defendant to execute the Deed of Final Sale, the clerk of court
is directed to execute the said document. Without pronouncement as to damages and attorneys fees. Costs against the defendant-appellee.3

The case at bar arose from a complaint filed by the private respondent, then plaintiff, against the petitioner, then defendant, in the Court of First
Instance (now Regional Trial Court) of Bulacan, at Sta. Maria, Bulacan,4 for specific performance with damages, based on a contract5 executed on July 7,
1971.

The property subject matter of the contract consists of a 20,655 sq.m.-portion, out of the 30,655 sq.m. total area, of a parcel of land covered by Original
Certificate of Title No. 575 of the Province of Bulacan, issued and registered in the name of the petitioner which it sold to the private respondent for and
in consideration of P123,930.00.
The crux of the instant controversy lies in the compliance or non-compliance by the private respondent with the provision for payment to the petitioner
of the principal balance of P100,000.00 and the accrued interest of P24,000.00 within the grace period.
A chronological narration of the antecedent facts is as follows:
On July 7, 1971, the subject contract over the land in question was executed between the petitioner as vendor and the private respondent through its
then president, Mr. Carlos F. Robes, as vendee, stipulating for a downpayment of P23,930.00 and the balance of P100,000.00 plus 12% interest per
annum to be paid within four (4) years from execution of the contract, that is, on or before July 7, 1975. The contract likewise provides for cancellation,
forfeiture of previous payments, and reconveyance of the land in question in case the private respondent would fail to complete payment within the said
period.

On March 12, 1973, the private respondent, through its new president, Atty. Adalia Francisco, addressed a letter6 to Father Vasquez, parish priest of San
Jose Del Monte, Bulacan, requesting to be furnished with a copy of the subject contract and the supporting documents.

On July 17, 1975, admittedly after the expiration of the stipulated period for payment, the same Atty. Francisco wrote the petitioner a formal request7
that her company be allowed to pay the principal amount of P100,000.00 in three (3) equal installments of six (6) months each with the first installment
and the accrued interest of P24,000.00 to be paid immediately upon approval of the said request.
On July 29, 1975, the petitioner, through its counsel, Atty. Carmelo Fernandez, formally denied the said request of the private respondent, but granted
the latter a grace period of five (5) days from the receipt of the denial8 to pay the total balance of P124,000.00, otherwise, the provisions of the contract
regarding cancellation, forfeiture, and reconveyance would be implemented.
On August 4, 1975, the private respondent, through its president, Atty. Francisco, wrote9 the counsel of the petitioner requesting an extension of 30
days from said date to fully settle its account. The counsel for the petitioner, Atty. Fernandez, received the said letter on the same day. Upon
consultation with the petitioner in Malolos, Bulacan, Atty. Fernandez, as instructed, wrote the private respondent a letter10 dated August.
Consequently, Atty. Francisco, the private respondents president, wrote a letter11 dated August 22, 1975, directly addressed to the petitioner,
protesting the alleged refusal of the latter to accept tender of payment purportedly made by the former on August 5, 1975, the last day of the grace
period. In the same letter of August 22, 1975, received on the following day by the petitioner, the private respondent demanded the execution of a deed
of absolute sale over the land in question and after which it would pay its account in full, otherwise, judicial action would be resorted to.

On August 27, 1975, the petitioners counsel, Atty. Fernandez, wrote a reply12 to the private respondent stating the refusal of his client to execute the
deed of absolute sale due to its (private respondents) failure to pay its full obligation. Moreover, the petitioner denied that the private respondent had
made any tender of payment whatsoever within the grace period. In view of this alleged breach of contract, the petitioner cancelled the contract and
considered all previous payments forfeited and the land as ipso facto reconveyed.

From a perusal of the foregoing facts, we find that both the contending parties have conflicting versions on the main question of tender of payment.

The trial court, in its ratiocination, preferred not to give credence to the evidence presented by the private respondent. According to the trial court:

x x x What made Atty. Francisco suddenly decide to pay plaintiffs obligation on August 5, 1975, go to defendants office at Malolos, and there tender her
payment, when her request of August 4, 1975 had not yet been acted upon until August 7, 1975? If Atty. Francisco had decided to pay the obligation and
had available funds for the purpose on August 5, 1975, then there would have been no need for her to write defendant on August 4, 1975 to request an
extension of time. Indeed, Atty. Franciscos claim that she made a tender of payment on August 5, 1975such alleged act, considered in relation to the
circumstances both antecedent and subsequent thereto, being not in accord with the normal pattern of human conductis not worthy of credence.13

The trial court likewise noted the inconsistency in the testimony of Atty. Francisco, president of the private respondent, who earlier testified that a
certain Mila Policarpio accompanied her on August 5, 1975 to the office of the petitioner. Another person, however, named Aurora Oracion, was
presented to testify as the secretary-companion of Atty. Francisco on that same occasion.

Furthermore, the trial court considered as fatal the failure of Atty. Francisco to present in court the certified personal check allegedly tendered as
payment or, at least, its xerox copy, or even bank records thereof. Finally, the trial court found that the private respondent had insufficient funds
available to fulfill the entire obligation considering that the latter, through its president, Atty. Francisco, only had a savings account deposit of
P64,840.00, and although the latter had a money-market placement of P300,000.00. the same was to mature only after the expiration of the 5-day grace
period.

Based on the above considerations, the trial court rendered a decision in favor of the petitioner, the dispositive portion of which reads:

WHEREFORE, finding plaintiff to have failed to make out its case, the court hereby declares the subject contract cancelled and plaintiffs down payment
of P23,930.00 forfeited in favor of defendant, and hereby dismisses the complaint; and on the counterclaim, the Court orders plaintiff to pay defendant.

(1) Attorneys fees of P10,000.00;
(2) Litigation expenses of P2,000.00; and
(3) Judicial costs.

SO ORDERED.14

Not satisfied with the said decision, the private respondent appealed to the respondent Intermediate Appellate Court (now Court of Appeals) assigning as
reversible errors, among others, the findings of the trial court that the available funds of the private respondent were insufficient and that the latter did
not effect a valid tender of payment and consignation.
The respondent court, in reversing the decision of the trial court, essentially relies on the following findings:

x x x We are convinced from the testimony of Atty. Adalia Francisco and her witnesses that in behalf of the plaintiff-appellant they have a total available
sum of P364,840.00 at her and at the plaintiffs disposal on or before August 4, 1975 to answer for the obligation of the plaintiff-appellant. It was not
correct for the trial court to conclude that the plaintiff-appellant had only about P64,840.00 in savings deposit on or before August 5, 1975, a sum not
enough to pay the outstanding account of P124,000.00. The plaintiff-appellant, through Atty. Francisco proved and the trial court even acknowledged
that Atty. Adalia Francisco had about P300,000.00 in money market placement. The error of the trial court lies in concluding that the money market
placement of P300,000.00 was out of reach of Atty. Francisco. But as testified to by Mr. Catalino Estrella, a representative of the Insular Bank of Asia and
America, Atty. Francisco could withdraw anytime her money market placement and place it at her disposal, thus proving her financial capability of
meeting more than the whole of P124,000.00 then due per contract. This situation, We believe, proves the truth that Atty. Francisco apprehensive that
her request for a 30-day grace period would be denied, she tendered payment on August 4, 1975 which offer defendant through its representative and
counsel refused to receive. x x x15 (Italics supplied)
In other words, the respondent court, finding that the private respondent had sufficient available funds, ipso facto concluded that the latter had
tendered payment. Is such conclusion warranted by the facts proven? The petitioner submits that it is not.
Hence, this petition.16

The petitioner presents the following issues for resolution:
A. Is a finding that private respondent had sufficient available funds on or before the grace period for the payment of its obligation proof that it
(private respondent) did tender of (sic) payment for its said obligation within said period?
x x x x x x x x x
B. Is it the legal obligation of the petitioner (as vendor) to execute a deed of absolute sale in favor of the private respondent (as vendee) before the
latter has actually paid the complete consideration of the salewhere the contract between and executed by the parties stipulates
That upon complete payment of the agreed consideration by the herein VENDEE, the VENDOR shall cause the execution of a Deed of Absolute Sale in
favor of the VENDEE.

x x x x x x x x x

C. Is an offer of a check a valid tender of payment of an obligation under a contract which stipulates that the consideration of the sale is in Philippine
Currency?17

We find the petition impressed with merit.

With respect to the first issue, we agree with the petitioner that a finding that the private respondent had sufficient available funds on or before the
grace period for the payment of its obligation does not constitute proof of tender of payment by the latter for its obligation within the said period.
Tender of payment involves a positive and unconditional act by the obligor of offering legal tender currency as payment to the obligee for the formers
obligation and demanding that the latter accept the same. Thus, tender of payment cannot be presumed by a mere inference from surrounding
circumstances. At most, sufficiency of available funds is only affirmative of the capacity or ability of the obligor to fulfill his part of the bargain. But
whether or not the obligor avails himself of such funds to settle his outstanding account remains to be proven by independent and credible evidence.
Tender of payment presupposes not only that the obligor is able, ready, and willing, but more so, in the act of performing his obligation. Ab posse ad actu
non vale illatio. A proof that an act could have been done is no proof that it was actually done.

The respondent court was therefore in error to have concluded from the sheer proof of sufficient available funds on the part of the private respondent to
meet more than the total obligation within the grace period, the alleged truth of tender of payment. The same is a classic case of non-sequitur.

On the contrary, the respondent court finds itself remiss in overlooking or taking lightly the more important findings of fact made by the trial court which
we have earlier mentioned and which as a rule, are entitled to great weight on appeal and should be accorded full consideration and respect and should
not be disturbed unless for strong and cogent reasons.18
While the Court is not a trier of facts, yet, when the findings of fact of the Court of Appeals are at variance with those of the trial court,19 or when the
inference of the Court of Appeals from its findings of fact is manifestly mistaken,20 the Court has to review the evidence in order to arrive at the correct
findings based on the record.

Apropos the second issue raised, although admittedly the documents for the deed of absolute sale had not been prepared, the subject contract clearly
provides that the full payment by the private respondent is an a priori condition for the execution of the said documents by the petitioner.
That upon complete payment of the agreed consideration by the herein VENDEE, the VENDOR shall cause the execution of a Deed of Absolute Sale in
favor of the VENDEE.21
The private respondent is therefore in estoppel to claim otherwise as the latter did in the testimony in cross-examination of its president, Atty. Francisco,
which reads:
Q Now, you mentioned, Atty. Francisco, that you wanted the defendant to execute the final deed of sale before you would given (sic) the personal
certified check in payment of your balance, is that correct?

A Yes, sir.22
x x x x x x x x x
Art. 1159 of the Civil Code of the Philippines provides that obligations arising from contracts have the force of law between the contracting parties and
should be complied with in good faith. And unless the stipulations in said contract are contrary to law, morals, good customs, public order, or public
policy, the same are binding as between the parties.23

What the private respondent should have done if it was indeed desirous of complying with its obligations would have been to pay the petitioner within
the grace period and obtain a receipt of such payment duly issued by the latter. Thereafter, or, allowing a reasonable time, the private respondent could
have demanded from the petitioner the execution of the necessary documents. In case the petitioner refused, the private respondent could have had
always resorted to judicial action for the legitimate enforcement of its right. For the failure of the private respondent to undertake this more judicious
course of action, it alone shall suffer the consequences.
With regard to the third issue, granting arguendo that we would rule affirmatively on the two preceding issues, the case of the private respondent still
can not succeed in view of the fact that the latter used a certified personal check which is not legal tender nor the currency stipulated, and therefore, can
not constitute valid tender of payment. The first paragraph of Art. 1249 of the Civil Code provides that the payment of debts in money shall be made in
the currency stipulated, and if it is not possible to deliver such currency, then in the currency which is legal tender in the Philippines.
The Court en banc in the recent case of Philippine Airlines v. Court of Appeals,24 G.R. No. L-49188, stated thus:
Since a negotiable instrument is only a substitute for money and not money, the delivery of such an instrument does not, by itself, operate as payment
(citing Sec. 189, Act 2031 on Negs. Insts.; Art. 1249, Civil Code; Bryan London Co. v. American Bank, 7 Phil. 255; Tan Sunco v. Santos, 9 Phil. 44; 21 R.C.L.
60, 61). A check, whether a managers check or ordinary check, is not legal tender, and an offer of a check in payment of a debt is not a valid tender of
payment and may be refused receipt by the obligee or creditor.

Hence, where the tender of payment by the private respondent was not valid for failure to comply with the requisite payment in legal tender or currency
stipulated within the grace period and as such, was validly refused receipt by the petitioner, the subsequent consignation did not operate to discharge
the former from its obligation to the latter.

In view of the foregoing, the petitioner in the legitimate exercise of its rights pursuant to the subject contract, did validly order therefore the cancellation
of the said contract, the forfeiture of the previous payment, and the reconveyance ipso facto of the land in question.

WHEREFORE, the petition for review on certiorari is GRANTED and the DECISION of the respondent court promulgated on April 25, 1985 is hereby SET
ASIDE and ANNULLED and the DECISION of the trial court dated May 25, 1981 is hereby REINSTATED. Costs against the private respondent.

SO ORDERED.
Melencio-Herrera (Chairman), Paras and Regalado, JJ., concur.
Padilla, J., No part, former counsel of petitioner.
Petition granted. Decision set aside and annulled.

[G.R. No. 154127. December 8, 2003]
ROMEO C. GARCIA, petitioner, vs. DIONISIO V. LLAMAS, respondent.
D E C I S I O N
PANGANIBAN, J .:
Novation cannot be presumed. It must be clearly shown either by the
express assent of the parties or by the complete incompatibility between the
old and the new agreements. Petitioner herein fails to show either requirement
convincingly; hence, the summary judgment holding him liable as a joint
and solidary debtor stands.
The Case
Before us is a Petition for Review
[1]
under Rule 45 of the Rules of Court,
seeking to nullify the November 26, 2001 Decision
[2]
and the June 26,
2002 Resolution
[3]
of the Court of Appeals (CA) in CA-GR CV No. 60521. The
appellate court disposed as follows:
UPON THE VIEW WE TAKE OF THIS CASE, THUS, the judgment appealed
from, insofar as it pertains to [Petitioner] Romeo Garcia, must be, as it hereby
is, AFFIRMED, subject to the modification that the award for attorneys fees and
cost of suit is DELETED. The portion of the judgment that pertains to x x x Eduardo
de Jesus is SET ASIDE and VACATED. Accordingly, the case against
x x x Eduardo de Jesus is REMANDED to the court of origin for purposes of
receiving ex parte [Respondent] Dionisio Llamas evidence against x x x Eduardo de
Jesus.
[4]

The challenged Resolution, on the other hand, denied petitioners Motion
for Reconsideration.
The Antecedents
The antecedents of the case are narrated by the CA as follows:
This case started out as a complaint for sum of money and damages
by x x x [Respondent] Dionisio Llamas against x x x [Petitioner] Romeo Garcia and
Eduardo de Jesus. Docketed as Civil Case No. Q97-32-873, the complaint alleged
that on 23 December 1996[,] [petitioner and de Jesus] borrowed P400,000.00 from
[respondent]; that, on the same day, [they] executed a promissory note wherein they
bound themselves jointly and severally to pay the loan on or before 23 January 1997
with a 5% interest per month; that the loan has long been overdue and, despite
repeated demands, [petitioner and de Jesus] have failed and refused to pay it; and that,
by reason of the[ir] unjustified refusal, [respondent] was compelled to engage the
services of counsel to whom he agreed to pay 25% of the sum to be recovered from
[petitioner and de Jesus], plus P2,000.00 for every appearance in court. Annexed to
the complaint were the promissory note above-mentioned and a demand letter,
dated 02 May 1997, by [respondent] addressed to [petitioner and de Jesus].
Resisting the complaint, [Petitioner Garcia,] in his [Answer,] averred that he
assumed no liability under the promissory note because he signed it merely as an
accommodation party for x x x de Jesus; and, alternatively, that he is relieved from
any liability arising from the note inasmuch as the loan had been paid by x x x de
Jesus by means of a check dated 17 April 1997; and that, in any event, the issuance of
the check and [respondents] acceptance thereof novated or superseded the note.
[Respondent] tendered a reply to [Petitioner] Garcias answer, thereunder asserting
that the loan remained unpaid for the reason that the check issued by x x x de Jesus
bounced, and that [Petitioner] Garcias answer was not even accompanied by a
certificate of non-forum shopping. Annexed to the reply were the face of the check
and the reverse side thereof.
For his part, x x x de Jesus asserted in his [A]nswer with [C]ounterclaim that out of
the supposed P400,000.00 loan, he received only P360,000.00, the P40,000.00 having
been advance interest thereon for two months, that is, for January and February 1997;
that[,] in fact[,] he paid the sum of P120,000.00 by way of interests; that this was
made when [respondents] daughter, one Nits Llamas-Quijencio, received from the
Central Police District Command at Bicutan, Taguig, Metro Manila (where x x x de
Jesus worked), the sum of P40,000.00, representing the peso equivalent of his
accumulated leave credits, another P40,000.00 as advance interest, and still
another P40,000.00 as interest for the months of March and April 1997; that he had
difficulty in paying the loan and had asked [respondent] for an extension of time; that
[respondent] acted in bad faith in instituting the case, [respondent] having agreed to
accept the benefits he (de Jesus) would receive for his retirement, but [respondent]
nonetheless filed the instant case while his retirement was being processed; and that,
in defense of his rights, he agreed to pay his counsel P20,000.00 [as] attorneys fees,
plus P1,000.00 for every court appearance.
During the pre-trial conference, x x x de Jesus and his lawyer did not appear, nor did
they file any pre-trial brief. Neither did [Petitioner] Garcia file a pre-trial brief, and
his counsel even manifested that he would no [longer] present evidence. Given this
development, the trial court gave [respondent] permission to present his
evidence ex parte against x x x de Jesus; and, as regards [Petitioner] Garcia, the trial
court directed [respondent] to file a motion for judgment on the pleadings, and for
[Petitioner] Garcia to file his comment or opposition thereto.
Instead, [respondent] filed a [M]otion to declare [Petitioner] Garcia in default and to
allow him to present his evidence ex parte. Meanwhile, [Petitioner] Garcia filed a
[M]anifestation submitting his defense to a judgment on the pleadings. Subsequently,
[respondent] filed a [M]anifestation/[M]otion to submit the case for judgement on the
pleadings, withdrawing in the process his previous motion. Thereunder, he asserted
that [petitioners and de Jesus] solidary liability under the promissory note cannot be
any clearer, and that the check issued by de Jesus did not discharge the loan since the
check bounced.
[5]

On July 7, 1998, the Regional Trial Court (RTC) of Quezon City (Branch
222) disposed of the case as follows:
WHEREFORE, premises considered, judgment on the pleadings is hereby rendered
in favor of [respondent] and against [petitioner and De Jesus], who are hereby ordered
to pay, jointly and severally, the [respondent] the following sums, to wit:
1) P400,000.00 representing the principal amount plus 5% interest thereon per
month from January 23, 1997 until the same shall have been fully paid, less the
amount of P120,000.00 representing interests already paid by x x x de Jesus;
2) P100,000.00 as attorneys fees plus appearance fee of P2,000.00 for each
day of [c]ourt appearance, and;
3) Cost of this suit.
[6]

Ruling of the Court of Appeals
The CA ruled that the trial court had erred when it rendered a judgment on
the pleadings against De Jesus. According to the appellate court, his Answer
raised genuinely contentious issues. Moreover, he was still required to
present his evidence ex parte. Thus, respondent was not ipso facto entitled to
the RTC judgment, even though De Jesus had been declared in default. The
case against the latter was therefore remanded by the CA to the trial court for
the ex parte reception of the formers evidence.
As to petitioner, the CA treated his case as a summary judgment, because
his Answer had failed to raise even a single genuine issue regarding any
material fact.
The appellate court ruled that no novation -- express or implied -- had
taken place when respondent accepted the check from De Jesus. According
to the CA, the check was issued precisely to pay for the loan that was covered
by the promissory note jointly and severally undertaken by petitioner and De
Jesus. Respondents acceptance of the check did not serve to make De Jesus
the sole debtor because, first, the obligation incurred by him and petitioner
was joint and several; and, second, the check -- which had been intended to
extinguish the obligation -- bounced upon its presentment.
Hence, this Petition.
[7]

Issues
Petitioner submits the following issues for our consideration:
I
Whether or not the Honorable Court of Appeals gravely erred in not holding
that novation applies in the instant case as x x x Eduardo de Jesus had expressly
assumed sole and exclusive liability for the loan obligation he obtained from
x x x Respondent Dionisio Llamas, as clearly evidenced by:
a) Issuance by x x x de Jesus of a check in payment of the full
amount of the loan of P400,000.00 in favor of Respondent
Llamas, although the check subsequently bounced[;]
b) Acceptance of the check by the x x x respondent x x x which
resulted in [the] substitution by x x x de Jesus or [the superseding
of] the promissory note;
c) x x x de Jesus having paid interests on the loan in the total
amount of P120,000.00;
d) The fact that Respondent Llamas agreed to the proposal
of x x x de Jesus that due to financial difficulties, he be given an
extension of time to pay his loan obligation and that his retirement
benefits from the Philippine National Police will answer for said
obligation.
II
Whether or not the Honorable Court of Appeals seriously erred in not holding that the
defense of petitioner that he was merely an accommodation party, despite the fact that
the promissory note provided for a joint and solidary liability, should have been given
weight and credence considering that subsequent events showed that the principal
obligor was in truth and in fact x x x de Jesus, as evidenced by the foregoing
circumstances showing his assumption of sole liability over the loan obligation.
III
Whether or not judgment on the pleadings or summary judgment was properly availed
of by Respondent Llamas, despite the fact that there are genuine issues of fact, which
the Honorable Court of Appeals itself admitted in its Decision, which call for the
presentation of evidence in a full-blown trial.
[8]

Simply put, the issues are the following: 1) whether there was novation of
the obligation; 2) whether the defense that petitioner was only an
accommodation party had any basis; and 3) whether the judgment against
him -- be it a judgment on the pleadings or a summary judgment -- was
proper.
The Courts Ruling
The Petition has no merit.
First Issue:
Novation
Petitioner seeks to extricate himself from his obligation as joint
and solidary debtor by insisting that novation took place, either through the
substitution of De Jesus as sole debtor or the replacement of the promissory
note by the check. Alternatively, the former argues that the original obligation
was extinguished when the latter, who was his co-obligor, paid the loan with
the check.
The fallacy of the second (alternative) argument is all too apparent. The
check could not have extinguished the obligation, because it bounced upon
presentment. By law,
[9]
the delivery of a check produces the effect of payment
only when it is encashed.
We now come to the main issue of whether novation took place.
Novation is a mode of extinguishing an obligation by changing its objects
or principal obligations, by substituting a new debtor in place of the old one, or
by subrogating a third person to the rights of the creditor.
[10]
Article 1293 of the
Civil Code defines novation as follows:
Art. 1293. Novation which consists in substituting a new debtor in the place of the
original one, may be made even without the knowledge or against the will of the
latter, but not without the consent of the creditor. Payment by the new debtor gives
him rights mentioned in articles 1236 and 1237.
In general, there are two modes of substituting the person of the debtor:
(1) expromision and (2) delegacion. In expromision, the initiative for the
change does not come from -- and may even be made without the knowledge
of -- the debtor, since it consists of a third persons assumption of the
obligation. As such, it logically requires the consent of the third person and
the creditor. In delegacion, the debtor offers, and the creditor accepts, a third
person who consents to the substitution and assumes the obligation; thus, the
consent of these three persons are necessary.
[11]
Both modes of substitution by
the debtor require the consent of the creditor.
[12]

Novation may also be extinctive or modificatory. It is extinctive when an
old obligation is terminated by the creation of a new one that takes the place
of the former. It is merelymodificatory when the old obligation subsists to the
extent that it remains compatible with the amendatory agreement.
[13]
Whether
extinctive or modificatory, novation is made either by changing the object or
the principal conditions, referred to as objective or real novation; or by
substituting the person of the debtor or subrogating a third person to the rights
of the creditor, an act known as subjective or
personal novation.
[14]
For novation to take place, the following requisites must
concur:
1) There must be a previous valid obligation.
2) The parties concerned must agree to a new contract.
3) The old contract must be extinguished.
4) There must be a valid new contract.
[15]

Novation may also be express or implied. It is express when the new
obligation declares in unequivocal terms that the old obligation is
extinguished. It is implied when the new obligation is incompatible with the
old one on every point.
[16]
The test of incompatibility is whether the two
obligations can stand together, each one with its own independent existence.
[17]

Applying the foregoing to the instant case, we hold that no novation took
place.
The parties did not unequivocally declare that the old obligation had been
extinguished by the issuance and the acceptance of the check, or that the
check would take the place of the note. There is no incompatibility between
the promissory note and the check. As the CA correctly observed, the check
had been issued precisely to answer for the obligation. On the one hand, the
note evidences the loan obligation; and on the other, the check answers for
it. Verily, the two can stand together.
Neither could the payment of interests -- which, in petitioners view, also
constitutes novation
[18]
-- change the terms and conditions of the
obligation. Such payment was already provided for in the promissory note
and, like the check, was totally in accord with the terms thereof.
Also unmeritorious is petitioners argument that the obligation
was novated by the substitution of debtors. In order to change the person of
the debtor, the old one must be expressly released from the obligation, and
the third person or new debtor must assume the formers place in the
relation.
[19]
Well-settled is the rule that novation is never
presumed.
[20]
Consequently, that which arises from a purported change in the
person of the debtor must be clear and express.
[21]
It is thus incumbent on
petitioner to show clearly and unequivocally that novation has indeed taken
place.
In the present case, petitioner has not shown that he was expressly
released from the obligation, that a third person was substituted in his place,
or that the joint and solidaryobligation was cancelled and substituted by the
solitary undertaking of De Jesus. The CA aptly held:
x x x. Plaintiffs acceptance of the bum check did not result in substitution by de
Jesus either, the nature of the obligation being solidary due to the fact that the
promissory note expressly declared that the liability of appellants thereunder is joint
and [solidary.] Reason: under the law, a creditor may demand payment or
performance from one of the solidary debtors or some or all of them simultaneously,
and payment made by one of them extinguishes the obligation. It therefore follows
that in case the creditor fails to collect from one of the solidary debtors, he may still
proceed against the other or others. x x x
[22]

Moreover, it must be noted that for novation to be valid and legal, the law
requires that the creditor expressly consent to the substitution of a new
debtor.
[23]
Since novation implies a waiver of the right the creditor had before
the novation, such waiver must be express.
[24]
It cannot be supposed, without
clear proof, that the present respondent has done away with his right to exact
fulfillment from either of the solidary debtors.
[25]

More important, De Jesus was not a third person to the obligation. From
the beginning, he was a joint and solidary obligor of the P400,000 loan; thus,
he can be released from it only upon its extinguishment. Respondents
acceptance of his check did not change the person of the debtor, because a
joint and solidary obligor is required to pay the entirety of the obligation.
It must be noted that in a solidary obligation, the creditor is entitled to
demand the satisfaction of the whole obligation from any or all of the
debtors.
[26]
It is up to the former to determine against whom to enforce
collection.
[27]
Having made himself jointly and severally liable with De Jesus,
petitioner is therefore liable
[28]
for the entire obligation.
[29]

Second Issue:
Accommodation Party
Petitioner avers that he signed the promissory note merely as an
accommodation party; and that, as such, he was released as obligor when
respondent agreed to extend the term of the obligation.
This reasoning is misplaced, because the note herein is not a negotiable
instrument. The note reads:
PROMISSORY NOTE
P400,000.00
RECEIVED FROM ATTY. DIONISIO V. LLAMAS, the sum of FOUR
HUNDRED THOUSAND PESOS, Philippine Currency payable on or before January
23, 1997 at No. 144 K-10 St. Kamias,Quezon City, with interest at the rate of 5% per
month or fraction thereof.
It is understood that our liability under this loan is jointly and severally [sic].
Done at Quezon City, Metro Manila this 23
rd
day of December, 1996.
[30]

By its terms, the note was made payable to a specific person rather than
to bearer or to order
[31]
-- a requisite for negotiability under Act 2031, the
Negotiable Instruments Law (NIL). Hence, petitioner cannot avail himself of
the NILs provisions on the liabilities and defenses of an accommodation
party. Besides, a non-negotiable note is merely a simple contract in writing
and is evidence of such intangible rights as may have been created by the
assent of the parties.
[32]
The promissory note is thus covered by the general
provisions of the Civil Code, not by the NIL.
Even granting arguendo that the NIL was applicable, still, petitioner would
be liable for the promissory note. Under Article 29 of Act 2031, an
accommodation party is liable for the instrument to a holder for value even if,
at the time of its taking, the latter knew the former to be only an
accommodation party. The relation between an accommodation party and the
party accommodated is, in effect, one of principal and surety -- the
accommodation party being the surety.
[33]
It is a settled rule that a surety is
bound equally and absolutely with the principal and is deemed an
original promissor and debtor from the beginning. The liability is immediate
and direct.
[34]

Third Issue:
Propriety of Summary J udgment
or J udgment on the Pleadings
The next issue illustrates the usual confusion between a judgment on the
pleadings and a summary judgment. Under Section 3 of Rule 35 of the Rules
of Court, a summary judgment may be rendered after a summary hearing if
the pleadings, supporting affidavits, depositions and admissions on file show
that (1) except as to the amount of damages, there is no genuine issue
regarding any material fact; and (2) the moving party is entitled to a judgment
as a matter of law.
A summary judgment is a procedural device designed for the prompt
disposition of actions in which the pleadings raise only a legal, not a genuine,
issue regarding any material fact.
[35]
Consequently, facts are asserted in the
complaint regarding which there is yet no admission, disavowal or
qualification; or specific denials or affirmative defenses are set forth in the
answer, but the issues are fictitious as shown by the pleadings, depositions or
admissions.
[36]
A summary judgment may be applied for by either a claimant or
a defending party.
[37]

On the other hand, under Section 1 of Rule 34 of the Rules of Court, a
judgment on the pleadings is proper when an answer fails to render an issue
or otherwise admits the material allegations of the adverse partys
pleading. The essential question is whether there are issues generated by the
pleadings.
[38]
A judgment on the pleadings may be sought only by a claimant,
who is the party seeking to recover upon a claim, counterclaim or cross-claim;
or to obtain a declaratory relief.
[39]

Apropos thereto, it must be stressed that the trial courts judgment against
petitioner was correctly treated by the appellate court as a summary
judgment, rather than as a judgment on the pleadings. His
Answer
[40]
apparently raised several issues -- that he signed the promissory
note allegedly as a mere accommodation party, and that the obligation was
extinguished by either payment or novation. However, these are not factual
issues requiring trial. We quote with approval the CAs observations:
Although Garcias [A]nswer tendered some issues, by way of affirmative defenses,
the documents submitted by [respondent] nevertheless clearly showed that the issues
so tendered were not valid issues. Firstly, Garcias claim that he was merely an
accommodation party is belied by the promissory note that he signed. Nothing in the
note indicates that he was only an accommodation party as he claimed to be. Quite the
contrary, the promissory note bears the statement: It is understood that our liability
under this loan is jointly and severally [sic]. Secondly, his claim that his co-
defendant de Jesus already paid the loan by means of a check collapses in view of the
dishonor thereof as shown at the dorsal side of said check.
[41]

From the records, it also appears that petitioner himself moved to submit
the case for judgment on the basis of the pleadings and documents. In a
written Manifestation,
[42]
he stated that judgment on the pleadings may now be
rendered without further evidence, considering the allegations and admissions
of the parties.
[43]

In view of the foregoing, the CA correctly considered as a summary
judgment that which the trial court had issued against petitioner.
WHEREFORE, this Petition is hereby DENIED and the assailed
Decision AFFIRMED. Costs against petitioner.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Ynares-Santiago, Carpio, and Azcuna,
JJ., concur.


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; Ibaez de Aldecoa vs. Hongkong and Shanghai Banking Corporation, 22 Phil., 572, 584; Manila Railroad
Co. vs. Compaia 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, Avancea and Villamor, JJ., concur.

G.R. No. L-22375 July 18, 1975
THE CAPITAL INSURANCE & SURETY CO., INC., petitioner,
vs.
PLASTIC ERA CO., INC., AND COURT OF APPEALS, respondents.
Salcedo, Del Rosario, Bito, Misa and Lozada for petitioner.
K.V. Faylona for Private respondent.

MARTIN, J .:
Petition for review of a decision of the Court of Appeals affirming the decision of the Court of First Instance of Manila
in Civil Case No. 47934 entitled "Plastic Era Manufacturing Co., Inc. versus The Capital Insurance and Surety Co.,
Inc."
On December 17, 1960, petitioner Capital Insurance & Surety Co., Inc. (hereinafter referred to as Capital Insurance)
delivered to the respondent Plastic Era Manufacturing Co., Inc., (hereinafter referred to as Plastic Era) its open Fire
Policy No. 22760
1
wherein the former undertook to insure the latter's building, equipments, raw materials, products
and accessories located at Sheridan Street, Mandaluyong, Rizal. The policy expressly provides that if the property
insured would be destroyed or damaged by fire after the payment of the premiums, at anytime between the 15th day
of December 1960 and one o'clock in the afternoon of the 15th day of December 1961, the insurance company shall
make good all such loss or damage in an amount not exceeding P100,000.00. When the policy was delivered, Plastic
Era failed to pay the corresponding insurance premium. However, through its duly authorized representative, it
executed the following acknowledgment receipt:
This acknowledged receipt of Fire Policy) NO. 22760 Premium
x x x x x) (I promise to pay)
(P2,220.00) (has been paid)
THIRTY DAYS AFTER on effective date ---------------------
(Date)
On January 8, 1961, in partial payment of the insurance premium, Plastic Era delivered to Capital Insurance, a
check
2
for the amount of P1,000.00 postdated January 16, 1961 payable to the order of the latter and drawn against
the Bank of America. However, Capital Insurance tried to deposit the check only on February 20, 1961 and the same
was dishonored by the bank for lack of funds. The records show that as of January 19, 1961 Plastic Era had a
balance of P1,193.41 with the Bank of America.
On January 18, 1961 or two days after the insurance premium became due, at about 4:00 to 5:00 o'clock in the
morning, the property insured by Plastic Era was destroyed by fire. In due time, the latter notified Capital Insurance of
the loss of the insured property by fire
3
and accordingly filed its claim for indemnity thru the Manila Adjustment
Company.
4
The loss and/or damage suffered by Plastic Era was estimated by the Manila Adjustment Company to be
P283,875. However, according to the records the same property has been insured by Plastic Era with the Philamgen
Insurance Company for P200,000.00.
In less than a month Plastic Era demanded from Capital Insurance the payment of the sum of P100,000.00 as
indemnity for the loss of the insured property under Policy No. 22760 but the latter refused for the reason that, among
others, Plastic Era failed to pay the insurance premium.
On August 25, 1961, Plastic Era filed its complaint against Capital Insurance for the recovery of the sum of
P100,000.00 plus P25,000.00 for attorney's fees and P20,000.00 for additional expenses. Capital Insurance filed a
counterclaim of P25,000.00 as and for attorney's fees.
On November 15, 1961, the trial court rendered judgment, the dispositive portion of which reads as follows:
WHEREFORE, judgment is rendered in favor of the plaintiff and against the defendant for the sum
of P88,325.63 with interest at the legal rate from the filing of the complaint and to pay the costs.
From said decision, Capital Insurance appealed to the Court of Appeals.
On December 5, 1963, the Court of Appeals rendered its decision affirming that of the trial court. Hence, this petition
for review by certiorari to this Court.
Assailing the decision of the Court of Appeals petitioner assigns the following errors, to wit:
1. THE COURT OF APPEALS ERRED IN SENTENCING PETITIONER TO PAY PLASTIC ERA
THE SUM OF P88,325.63 PLUS INTEREST, AND COST OF SUIT, ALTHOUGH PLASTIC ERA
NEVER PAID PETITIONER THE INSURANCE PREMIUM OF P2,220.88.
2. THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER SHOULD HAVE
INSTITUTED AN ACTION FOR RESCISSION OF THE INSURANCE CONTRACT ENTERED
INTO BETWEEN IT AND PLASTIC ERA BEFORE PETITIONER COULD BE RELIEVED OF
RESPONSIBILITY UNDER ITS FIRE INSURANCE POLICY.
3. WE HAVE SHOWN ABOVE THAT PLASTIC ERA'S ACTION WAS UNWARRANTED AND
THAT THE PETITIONER SHOULD HAVE BEEN ABSOLVED FROM THE COMPLAINT, AND
CONSEQUENTLY, THE LOWER COURT SHOULD HAVE AWARDED PETITIONER A
REASONABLE SUM AND AS ATTORNEY'S FEES P25,000.00.
The pivotal issue in this petition is whether or not a contract of insurance has been duly perfected between the
petitioner, Capital Insurance, and respondent Plastic Era. Necessarily, the issue calls for a correct interpretation of
the insurance policy which states:
This Policy of Insurance Witnesseth That in consideration of PLASTIC ERA MANUFACTURING
COMPANY, INC. hereinafter called the Insured, paying to the Capital Insurance & Surety Co., Inc.,
hereinafter called the Company, the sum of PESOS TWO THOUSAND ONE HUNDRED EIGHTY
EIGHT the premium for the first period hereinafter mentioned, for insuring against Loss or Damage
by only Fire or Lightning, as hereinafter appears, the Property hereinafter described and contained,
or described herein and not elsewhere, in the several sums following namely: PESOS ONE
HUNDRED THOUSAND ONLY, PHILIPPINE CURRENCY; ... THE COMPANY HEREBY AGREES
with the Insured but subject to the terms and conditions endorsed or otherwise expressed hereon,
which are to be taken as part of this Policy), that if the Property described, or any part thereof, shall
be destroyed or damaged by Fire or Lightning after payment of the Premiums, at anytime between
the 15th day of December One Thousand Nine Hundred and Sixty and 1 'clock in the afternoon of
the 15th day of December One Thousand Nine Hundred and Sixty-One of the last day of any
subsequent period in respect of which the insured, or a successor in interest to whom the
insurance is by an endorsement hereon declared to be or is otherwise continued, shall pay to the
Company and the Company shall accept the sum required for the renewal of this Policy, the
Company will pay or make good all such loss or Damage, to an amount not exceeding during any
one period of the insurance in respect of the several matters specified, the sum; set opposite
thereto respectively, and not exceeding the whole sum of PESOS, ONE HUNDRED THOUSAND
ONLY, PHIL. CUR....
In clear and unequivocal terms the insurance policy provides that it is only upon payment of the premiums by Plastic
Era that Capital Insurance agrees to insure the properties of the former against loss or damage in an amount not
exceeding P100,000.00.
The crux of the problem then is whether at the time the insurance policy was delivered to Plastic Era on December
17, 1960, the latter was able to pay the stipulated premium. It appears on record that on the day the insurance policy
was delivered, Plastic Era did not pay the Capital Insurance, but instead executed an acknowledgment receipt of
Policy No. 22760. In said receipt Plastic Era promised to pay the premium within thirty (30) days from the effectivity
date of the policy on December 17, 1960 and Capital Insurance accepted it. What then is the effect of accepting such
acknowledgment receipt from the Plastic Era? Did the Capital Insurance mean to agree to make good its undertaking
under the policy if the premium could be paid on or before January 16, 1961? And what would be the effect of the
delivery to Capital Insurance on January 8, 1961 of a postdated check (January 16, 1961) in the amount of
P1,000.00, payable to the order of the latter? Could not this have been considered a valid payment of the insurance
premium? Pursuant to Article 1249 of the New Civil Code:
xxx xxx xxx
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.
xxx xxx xxx
In the meantime, the action derived from the original obligation shall be held in abeyance.
Under this provision the mere delivery of a bill of exchange in payment of a debt does not immediately effect
payment. It simply suspends the action arising from the original obligation in satisfaction of which it was delivered,
until payment is accomplished either actually or presumptively.
5
Tender of draft or check in order to effect payment
that would extinguish the debtor's liability should be actually cashed.
6
If the delivery of the check of Plastic Era to
Capital Insurance were to be viewed in the light of the foregoing, no payment of the premium had been effected, for it
is only when the check is cashed that it is said to effect payment.
Significantly, in the case before Us the Capital Insurance accepted the promise of Plastic Era to pay the insurance
premium within thirty (30) days from the effective date of policy. By so doing, it has implicitly agreed to modify the
tenor of the insurance policy and in effect, waived the provision therein that it would only pay for the loss or damage
in case the same occurs after the payment of the premium. Considering that the insurance policy is silent as to the
mode of payment, Capital Insurance is deemed to have accepted the promissory note in payment of the premium.
This rendered the policy immediately operative on the date it was delivered. The view taken in most cases in the
United States:
... is that although one of conditions of an insurance policy is that "it shall not be valid or
binding until the first premium is paid", if it is silent as to the mode of payment, promissory
notes received by the company must be deemed to have been accepted in payment of
the premium. In other words, a requirement for the payment of the first or initial premium
in advance or actual cash may be waived by acceptance of a promissory note ...
7

Precisely, this was what actually happened when the Capital Insurance accepted the acknowledgment receipt of the
Plastic Era promising to pay the insurance premium within thirty (30) days from December 17, 1960. Hence, when the
damage or loss of the insured property occurred, the insurance policy was in full force and effect. The fact that the
check issued by Plastic Era in partial payment of the promissory note was later on dishonored did not in any way
operate as a forfeiture of its rights under the policy, there being no express stipulation therein to that effect.
In the absence of express agreement or stipulation to that effect in the policy, the non-
payment at maturity of a note given for and accepted as premium on a policy does not
operate to forfeit the rights of the insured even though the note is given for an initial
premium, nor does the fact that the collection of the note had been enjoined by the
insured in any way affect the policy.
8

... If the check is accepted as payment of the premium even though it turns out to be
worthless, there is payment which will prevent forfeiture. 9
By accepting its promise to pay the insurance premium within thirty (30) days from the effectivity date of the policy
December 17, 1960 Capital Insurance had in effect extended credit to Plastic Era. The payment of the premium on
the insurance policy therefore became an independent obligation the non-fulfillment of which would entitle Capital
Insurance to recover. It could just deduct the premium due and unpaid upon the satisfaction of the loss under the
policy.
10
It did not have the right to cancel the policy for nonpayment of the premium except by putting Plastic Era in
default and giving it personal notice to that effect. This Capital Insurance failed to do.
... Where credit is given by an insurance company for the payment of the premium it has
no right to cancel the policy for nonpayment except by putting the insured in default and
giving him personal notice....
11

On the contrary Capital Insurance had accepted a check for P1,000.00 from Plastic Era in partial payment of the
premium on the insurance policy. Although the check was due for payment on January 16, 1961 and Plastic Era had
sufficient funds to cover it as of January 19, 1961, Capital Insurance decided to hold the same for thirty-five (35) days
before presenting it for payment. Having held the check for such an unreasonable period of time, Capital Insurance
was estopped from claiming a forfeiture of its policy for non-payment even if the check had been dishonored later.1wph 1. t
Where the check is held for an unreasonable time before presenting it for payment, the
insurer may be held estopped from claiming a forfeiture if the check is dishonored.
12

Finally, it is submitted by petitioner that:
We are here concerned with a case of reciprocal obligations, and respondent having failed to
comply with its obligation to pay the insurance premium due on the policy within thirty days from
December 17, 1960, petitioner was relieved of its obligation to pay anything under the policy,
without the necessity of first instituting an action for rescission of the contract of insurance entered
into by the parties.
But precisely in this case, Plastic Era has complied with its obligation to pay the insurance premium and therefore
Capital Insurance is obliged to make good its undertaking to Plastic Era.
WHEREFORE, finding no reversible error in the decision appealed from, We hereby affirm the same in toto. Costs
against the petitioner.
SO ORDERED.
Castro, Makasiar, Esguerra and Muoz Palma, JJ., concur.
Teehankee, J., is on leave.

G.R. Nos. L-50405-06 August 5, 1981
VICENTA P. TOLENTINO and JOSE TOLENTINO, petitioners,
vs.
COURT OF APPEALS, BANK OF THE PHILIPPINE ISLANDS, CONSUELO B. DE LA CRUZ, et al., respondents.

DE CASTRO, J .:
A petition for review by certiorari of the consolidated decision
1
of the respondent Court of Appeals in CA-G.R. Nos.
53907-R
2
and 54004-R
3
promulgated on February 22, 1978, as well as the Resolution
4
of said Court of Appeals,
promulgated on March 30, 1979, denying the Motion for Reconsideration of the aforesaid consolidated decision.
Ceferino de la Cruz died in Davao City on April 19, 1960 leaving as his only heirs his widow, Consuelo de la Cruz,
and their children Hilario, Tarcelo, and Godofredo, all surnamed de la Cruz (hereinafter referred to as the De la
Cruzes). At the time of his demise, Ceferino left a parcel of land (homestead land) containing 131,705 square meters
covered by Original Certificate of Title No. P-16 in his name, issued by virtue of Homestead Patent No. V-1728.
In a deed of sale executed by the De la Cruzes on April 30, 1962, the homestead land was sold to the spouses Jose
Tolentino and Vicenta Tolentino (hereinafter referred to as the Tolentinos). The Tolentinos took immediate
possession of the homestead land and caused the cancellation of O.C.T. No. P-16 and the issuance of T.C.T. No. T-
11135 in their names.
In 1963, the Tolentinos constituted a first mortgage over the homestead land, together with two other parcels of land
covered by T.C.T. Nos. 11085 and 11626 in their names, in favor of the Bank of the Philippine Islands, (BPI) Davao
Branch, for a loan of P40,000. Another mortgage was constituted over the said properties in 1964 in favor of
Philippine Banking Corporation. The Tolentinos failed to pay their mortgage indebtedness to the BPI upon maturity in
the judicial foreclosure sale that followed, conducted by the City Sheriff of Davao on July 15, 1967, BPI was the sole
and highest bidder. The Sheriff's Certificate of Sale in favor of BPI was registered only on April 2, 1969 in the Registry
of Deeds of Davao.
Meanwhile, on February 4, 1967, the De la Cruzes filed an action
5
with the Court of First Instance of Davao against
the Tolentinos for the repurchase of the homestead land under Section 119 of the Public Land Act (CA 141), with a
prayer for damages and accounting of fruits on the ground that they had tried to repurchase said land extrajudicially
for several tunes already but that the Tolentinos would not heed their request, thus constraining the De la Cruzes to
file a court action for the repurchase thereof. BPI and Philippine Banking Corporation were included in the action as
formal party defendants, being the first and second mortgagees, respectively, of the homestead land. On June 1,
1967, the Tolentinos filed a motion for extension of ten (10) days "from and after June lst" to file their answer. This
motion was granted by the lower court.
On June 14, 1967, the De la Cruzes filed a petition to declare the Tolentinos in default for failure to file an answer. On
that same day, the Tolentinos filed a Motion to Dismiss the repurchase case on the ground that the complaint states
no cause of action, but said motion was denied by the lower court on the ground that the same was filed out of time.
Subsequently, the Tolentinos were declared in default and the De la Cruzes were allowed to present their
evidence ex parte.
On November 24, 1967, the Tolentinos filed their answer interposing the defense that the complaint states no cause
of action because from the face of T.C.T. No. T-11135 alone, only the original patentee, Ceferino, is given the right to
repurchase the homestead land and not the De la Cruzes and because the complaint does not allege that there was
a bona fide offer to repurchase or a valid tender of payment, as well as an allegation that the De la Cruzes intended
to pay not only the purchase price but all the other expenses of the sale which includes the necessary and useful
expenses made on the thing sold, as required under Article 1616 of the new Civil Code.
Upon a manifestation filed by the De la Cruzes, the lower court issued an Order dated December 8, 1967 declaring
the Tolentinos as "having no standing" in the proceedings therein, to which the latter filed a motion for its
reconsideration. This motion, as well as their second Motion for Reconsideration, was denied by the lower court.
On March 27, 1969, the lower court rendered a decision allowing the De la Cruzes to repurchase the homestead
land. Upon payment by the De la Cruzes of the amount of P16,000 representing the repurchase price to the BPI, the
latter executed a deed of conveyance over the homestead land on August 25, 1969. On motion, the lower court
issued a writ of possession in favor of the De la Cruzes on September 4, 1969, which was served by the City Sheriff
upon the Tolentinos on September 8, 1969. Accordingly, the possession of the homestead land was delivered to the
De la Cruzes on September 13,1969.
On September 19, 1969, the Tolentinos filed a petition for relief from the Decision dated March 27, 1969 on the
ground of excusable mistake in the counting of the reglementary period for the filing of an answer, with a prayer that
the Order declaring them in default be lifted and that they be allowed to present their defense.
On October 1, 1969, the Tolentinos filed a Motion to Quash the writ of possession alleging as principal grounds
therefor the absence of service on their counsel of a copy of the writ of possession, as well as the decision of the
lower court declaring the De la Cruzes entitled to repurchase the homestead land. The De la Cruzes filed an
opposition to this Motion and prayed for the investigation of an alleged tampering of records of the case particularly
the page containing the proofs of the service of a copy of the writ of possession as well as of the decision of the lower
court to the Tolentinos. On October 4, 1969, the lower court denied the Motion to Quash. A motion for reconsideration
was likewise denied by the lower court on December 6,1969.
On October 6, 1970, the Tolentinos filed before the respondent Court of Appeals a petition for certiorari (CA-G.R. No.
SP-46321) against the De la Cruzes, wherein the Tolentinos raise the propriety of the issuance of the Writ of
Possession alleging that it was issued improvidently because the decision of the lower court declaring them in default
was not served upon them and, therefore, the judgment has not become final and executory. This petition was denied
by the respondent court in a decision rendered on November 15, 1971 on the ground that the Tolentino were actually
and duly served with a copy of the questioned decision.
On March 5, 1973, the trial court issued an Order denying for lack of merit the petition for relief from judgment filed
therein by the Tolentinos. It likewise denied a motion for reconsideration filed subsequently by the Tolentinos in its
Order of July 5, 1973. Consequently, the Tolentinos appealed to the respondent Court of Appeals the above 2 Orders
of the lower court, docketed therein as CA G.R. No. 54004-R, claiming that the lower court erred and abused its
discretion in not lifting its Order of default and in not ordering resumption of trial for the reception of their evidence;
and, in finally ordering execution of the default judgment.
In the meantime, on March 2, 1970, petitioner Vicente Tolentino went to see Mr. Ramon Lopez, Branch Manager of
BPI Davao Branch, carrying a letter of even date, offering to redeem the homestead property for P16,000 covered by
a check. Upon being informed that she can no longer redeem the same for the reason that it was already conveyed to
the De la Cruzes pursuant to the decision dated March 27, 1969, Vicenta left the office of the manager, bringing with
her the letter which she later on sent to Mr. Lopez by registered mail, inclosed In another letter dated March 3, 1970,
reteirating her desire to redeem the homestead land. Mr. Lopez sent said letters to the BPI's legal counsel with
specific request to inform the Tolentinos that they can still redeem the two other properties covered by T.C.T. Nos.
11085 and 11626 before the expiration of the redemption period upon payment of the amount of P75,995.07 the
balance remaining after deducting the amount of P16,000 paid by the De la Cruzes for the homestead property.
However, instead of complying with BPI's advice, Vicente consigned with the Office of the City Sheriff of Davao a
crossed PNB check for P91,995.07 drawn against the PNB Kidapawan Branch, Cotabato, on March 31, 1970,
allegedly for the redemption of the 3 lots, including the homestead land. The following day, however, upon advice of
their counsel, Vicente issued a stop-payment order against the said crossed check purportedly to protect her rights
and to prevent BPI cashing said check without returning all the properties which BPI had foreclosed and purchased.
Simultaneously with the consignation of the crossed check with the City Sheriff of Davao on March 31, 1970, the
Tolentinos filed a complaint (redemption case)
6
against BPI, amended on April 15, 1970, with the Davao Court of
First Instance for the redemption of their properties covered by T.C.T. Nos. 11135, 11085 and 11626, which were
foreclosed by and sold to BPI, with a prayer for damages, imputing bad faith on BPI in allegedly refusing to allow
them to redeem all three lots and praying that BPI be ordered to allow the Tolentinos to redeem their properties, to
accept the payment consigned by them with the City Sheriff's Office of Davao, and to pay moral and exemplary
damages in the sum of P95,000 plus attorney's fees and costs of suit. BPI seasonably filed an answer with
counterclaim, denying the material averments of the complaint, the truth being that the Tolentinos did not have an
intention to redeem their said properties but only the homestead land. BPI counterclaimed for exemplary damages in
the sum of P5,000 and attorney's fees in the sum of P4,000 plus costs.
On April 10, 1973, the trial court rendered its decision dismissing the complaint of the Tolentinos, with no particular
pronouncement as to attorney's fees but with costs against the Tolentinos. From that decision, both the Tolentinos
and BPI appealed to the respondent Court of Appeals, docketed under CA-G.R. No. 53907- R, the Tolentinos
claiming that -
l. The lower court erred in finding that the title to the land covered by T.C.T. No. 11135 legally
passed to the heirs of Ceferino de la Cruz;
2. The lower court erred in holding that defendant-appellant (herein respondent BPI) was legally
justified, in refusing plaintiffs-appellants' (Tolentinos) demand to be allowed to redeem the lands in
question; and
3. The lower court erred in not granting plaintiffs-appellants' (Tolentinos) claim for damages.
while BPI claims that the trial court erred in not holding the Tolentinos liable for damages and attorney's fees despite
its findings that they acted in evident bad faith in
a. filing the complaint in the redemption case; and
b. issuing a crossed check drawn against the PNB, Kidapawan Branch, and likewise, in depositing
said check with the Sheriff's Office allegedly to redeem the foreclosed properties and, thereafter,
the day following the deposit in issuing a stop-payment order on said check.
Acting upon a written request dated March 26, 1976 filed by the Tolentinos for the consolidation of the two appealed
cases, CA-G.R. Nos. 53907-R (Civil Case No. 6830) and 54004-R (Civil Case No. 5432), the respondent Court of
Appeals resolved, after considering the comment of the BPI and the opposition of the De la Cruzes, to grant the
motion for consolidation by the Tolentinos.
In a consolidated decision
7
promulgated on February 22, 1978, the respondent Court of Appeals held:
In the Repurchase Case
(1) that "despite the order of the trial court as prayed for by appellants granting them a ten-day period of extension to
file their answer which was to expire on June 12, 1967, extended by operation of law to June 13, 1967, because June
12 was a holiday, the Tolentinos failed to file their answer. Instead, on June 14, 1967, which was already late, the
Tolentinos filed a motion to dismiss, which is not even a responsive pleading, followed by their answer filed more than
five months after, on November 24, 1967. The Tolentinos having failed to observe the requirements of the Rules of
Court, no abuse of discretion could be imputed to the court a quo in ordering them in default."
8
While "default orders
are judicially frowned upon, Quirante vs. Verano (L-30207, February 27, 1971, 37 SCRA 801) explicitly admonishes
that such 'is true only in meritorious cases, that is, where the failure to file answer on time was due to fraud, accident,
mistake, or excusable negligence and when the existence of a good and substantial defense has been shown.' No
showing was made in the case at bar, that the Tolentinos' failure to file their answer on time was due to any of these
grounds. The contention and insistence of counsel for the Tolentinos that he filed through his clerk the motion to
dismiss on June 13 but only stamped June 14, 1967, attributing negligence instead to the docket clerk of the lower
court was not believed by the lower court, and we (Court of Appeals) find no cogent reason for believing otherwise.
"
9
The Court of Appeals ruled further that "compounding the errors, is the failure of the Tolentinos and/or their
counsel to appear on January 12, 1968, the date set for hearing of their petition for relief, the reason given by counsel
that he was out-of-town when his clerk received the notice, and that his said clerk did not notify him nor did he note
said date on their trial calendar, being clearly a case of inexcusable negligence. "
(2) that the supposed existence of a good and meritorious defense relied by the Tolentinos consisting of the alleged
expiration of the five-year period for the repurchase of the homestead lot under Commonwealth Act No. 141 is clearly
belied by the records of the case which show that the offer to repurchase the homestead land made by the De la
Cruzes was well within the 5-year period required by law; and
(3) that the Tolentinos' claim that the lower court ordered the execution of the default judgment before its finality due
to the absence of service of the default judgment on them is not well- taken because this issue has already been
settled in CA G.R. No. SP-46321 rendered on November 15, 1971, where it was found, after an investigation was
conducted on the alleged disappearance of that page of the record where the receipts by the respective parties were
indicated, that the Tolentinos through their counsel were duly served with a copy of the default judgment.
In the Redemption Case
(1) in dismissing the Tolentinos' appeal, the respondent court reasoned that although there is no quarrel that the
Tolentinos had 12 months within which to redeem the properties sold at the Sheriff's sale counted from the time it was
registered on April 2, 1969, the problem, however, lies in the manner of the tender of payment made by them,
granting they made one, "since consignation by crossed check does not satisfy the requirements set forth in Article
1249 of the New Civil Code governing the payment of debts in money, which 'shall be made in the Currency
stipulate and if it is not possible to deliver such currency, then in the currency which is legal tender in the Philippines.'
Admittedly, a check, even if good when offered, does not satisfy the requirements of a legal tender, and for that very
reason, BPI was not legally bound to accept such tender of payment." Hence, no error was committed by the court a
quo in dismissing the Tolentinos' complaint for redemption with damages.
(2) in dismissing BPI's appeal, the respondent Court stated that "no bad faith should be attributed to the Tolentinos
for filing the instant case for redemption, in the absence of a proven motive to harass the BPI considering that in so
filing these cases, the Tolentinos acted in the belief that they are exercising certain rights under the law, and
considering further that they, too, had to spend in prosecuting their claims, no matter how unfounded they may have
proven to be."
On April 24, 1978, the Tolentinos filed a Motion for Reconsideration
10
in the Court of Appeals of the decision
rendered in CA-G.R. No. 53907-R on the ground that "the right to redeem is not an obligation or debt but rather a
privilege, hence, the provisions of Article 1249 N.C.C. governing payment of debts in money" do not apply in this
case; and, of the decision rendered in CA-G.R. No. 54004-R on the ground that the respondent court erred in not
considering that the trial court abused its discretion in declaring the Tolentinos in default, and that the period within
which the De la Cruzes can repurchase the homestead land had already expired, This Motion for Reconsideration
was denied by the respondent court for lack of merit in a Resolution dated March 30, 1979.
Hence, the instant petition for review from the foregoing consolidated Decision and Resolution raising the following
issues:
I
WHETHER OR NOT ARTICLE 1249 OF THE NEW CIVIL CODE APPLIES IN THE CASE AT BAR;
II
WHETHER OR NOT THE TENDER OF PAYMENT AND CONSIGNATION MADE BY THE
TOLENTINOS BEFORE THE CITY SHERIFF OF DAVAO WERE VALID; and
III
WHETHER THE DEFAULT JUDGMENT AGAINST THE TOLENTINOS IN CIVIL CASE NO. 5432
(CA-G.R. No. 54004-R) HAS BECOME FINAL AND EXECUTORY.
It is worthwhile to remember that Article 1249 of the new Civil Code deals with a mode of extinction of an obligation
and expressly provides for the medium in the "payment of debts." Thus, it provides that:
The payment of debts in money shall be made in the currency stipulated, and if it is not possible to
deliver such currency, then in the currency which is legal tender in the Philippines.
The delivery of promissory notes payable to order, or bills of exchange or other mercantile
documents shall produce the effect of payment only when they have been cashed, or when through
the fault of the creditor they have been impaired.
In the meantime, the action derived from the original obligation shall be held in abeyance.
We are of the considered view that the aforequoted Article should not be applied in the instant case, hereinafter
explained, together with the exposition on the resolution of the second issue raised in this petition, the first two issues
raised hinging ultimately on whether the Tolentinos may redeem the properties in suit.
To start with, the Tolentinos are not indebted to BPI their mortgage indebtedness having been extinguished with the
foreclosure and sale of the mortgaged properties. After said foreclosure and sale, what remains is the right vested by
law in favor of the Tolentinos to redeem the properties within the prescribed period. This right of redemption is an
absolute privilege, the exercise of which is entirely dependent upon the will and discretion of the redemptioners.
There is, thus, no legal obligation to exercise the right of redemption.
11
Said right, can in no sense, be considered an
obligation, for the Tolentinos are under no compulsion to exercise the same. Should they choose not to exercise it,
nobody can compel them to do so nor win such choice give rise to a cause of action in favor of the purchaser at the
auction sale. In fact, the relationship between said purchaser and the redemptioners is not even that of creditor and
debtor.
12

On the other hand, if the redemptioners choose to exercise their right of redemption, it is the policy of the law to aid
rather than to defeat the right of redemption.
13
It stands to reason therefore, that redemptions should be looked upon
with favor and where no injury is to follow, a liberal construction will be given to our redemption laws as well as to the
exercise of the right of redemption. In the instant case, the ends of justice would be better served by affording the
Tolentinos the opportunity to redeem the properties in question other than the homestead land, in line with the policy
aforesaid, to which We adhere fully notwithstanding the reason advanced by the Court of Appeals in its Resolution,
denying a reconsideration of its decision, which reads:
We agree that the act of redeeming of a property mortgaged is not an obligation but a
privilege, in the sense that the mortgagor may or may not redeem his property. That of
course is a privilege. He may choose to give up the property and have the mortgage
foreclosed, or redeem the property with the obligation of course to pay the loan or
indebtedness. But where he elects to redeem the property and he has to pay the loan for
which the mortgage was constituted, then Art. 1249 of the Civil Code applies because it
involves now the 'payment of debts.' It is only the act of redeeming or not that is
considered a privilege, but not the act of paying the obligation once the mortgagor has
elected to redeem the property, in which case the check issued or drawn shall produce
the effect of payment only when it has been cashed.
14

Under existing jurisprudence, what the redemptioner should pay, is not the amount of the "loan for which the
mortgage was constituted" as stated by the Court of Appeals, but the auction purchase price plus 1 % interest per
month on the said amount up to the time of redemption, together with the taxes or assessment paid by the purchaser
after the purchase, if any.
15
And in this connection, a formal offer to redeem, accompanied by a bona fide tender of
the redemption price, although proper, is not essential where, as in the instant case, the right to redeem is exercised
thru the filing of judicial action, which as noted earlier was made simultaneously with the deposit of the redemption
price with the Sheriff, within the period of redemption. The formal offer to redeem, accompanied by a bona fide tender
of the redemption price within the period of redemption prescribed by law, is only essential to preserve the right of
redemption for future enforcement even beyond such period of redemption. The filing of the action itself, within the
period of redemption, is equivalent to a formal offer to redeem.
16
Should the court allow redemption, the
redemptioners should then pay the amount already adverted to.
Moreover, when the action to redeem was filed, a simultaneous deposit of the redemption money was tendered to the
Sheriff and under the last sentence of Section 31, Rule 39 of the Rules of Court, it is expressly provided that the
tender of the redemption money may be made to the Sheriff who made the sale.
17
And the redemption is not
rendered in valid by the fact that the said officer accepted a check for the amount necessary to make the redemption
instead of requiring payment in money. It goes without saying that if he had seen fit to do so, the officer could have
required payment to be made in lawful money, and he undoubtedly, in accepting a check, placed himself in a position
where he could be liable to the purchaser at the public auction if any damage had been suffered by the latter as a
result of the medium in which payment was made. But this cannot affect the validity of the payment. The check as a
medium of payment in commercial transactions is too firmly established by usage to permit of any doubt upon this
point at the present day.
18
No importance may thus be attached to the circumstance that a stop-payment order was
issued against said check the day following the deposit, for the same will not militate against the right of the
Tolentinos to redeem, in the same manner that a withdrawal of the redemption money being deposited cannot be
deemed to have forfeited the right to redeem, such redemption being optional and not compulsory.
19
Withal, it is not
clearly shown that said stop payment order was made in bad faith. But while we uphold the right of redemption of the
Tolentinos, the same does not apply to the homestead land, for the reason that shall be indicated in the discussion of
the third issue.
It is a matter beyond dispute that We can review decisions of the Court of Appeals only on errors of law, its findings 6f
fact being generally conclusive. BPI argued that the default judgment in Civil Case No. 5432 (CA-G.R. No. 54004-R)
had already become final and executory; that the lower court found, after an investigation was conducted on the
matter, that petitioners were duly served with the default judgment; that this finding was affirmed by the Court of
Appeals in CA G.R. No. SP-46321 rendered on November 15, 1971, which decision G.R. No. SP-46321 rendered on
November 15, 1971, which decision had already been final and, therefore, the question of whether or not petitioners
were duly served with a copy of said judgment should now be considered closed, said question being factual.
20

As may be expected, the Tolentinos maintain that said question is one of law; that they did not in fact receive a copy
of the default judgment; and that the only reason for the finding of the lower court that there was a valid service of
default judgment was the sole testimony of BPI's counsel, who cannot even recall the date when the alleged service
was made, and there is no evidence as to the mode of such service.
21

In resolving their diametrically opposed propositions, it should be remembered that for a question to be one of law, it
must involve no examination of the probative value of the evidence presented by the litigants or any of them.
22
The
query here presented, necessarily invites calibration of the evidence to determine whether or not there was really
such service. As such, the question must be deemed to be factual in character and content, and as correctly pointed
out by BPI, the jurisprudence on the matter is that findings of facts of the lower court are accorded the highest degree
of respect.
23
It is not the function of this Court to analyze or weight the evidence all over again, its jurisdiction being
limited to reviewing errors of law that might have been committed by the lower court.
24

And as already intimated earlier, appreciation of evidence is within the domain of the respondent Court of Appeals
because its findings of facts, as a general rule, are not reviewable by the Supreme Court.
25
This has been the oft-
repeated and well-established rule which has been reiterated in a long line of cases enumerated in Chan v. Court of
Appeals
26
and Tapas v. Court of Appeals,
27
and in the more recent cases of Baptista v. Carillo
28
andVda. de
Catindig v. Heirs of Catalino Roque,
29
and We find no circumstance existing in this case, to justify a departure from
the said rule, More importantly, the petitioners not having appealed therefrom, the decision had already attained the
character of finality. The question of service cannot now be reopened or raised again in this proceedings for
otherwise, there will be no end to a litigation. Public policy and sound practice demand that judgment of courts should
become final at some definite date fixed by law.
30

Finally, We find no abuse of discretion, much less a grave abuse thereof, committed by the lower court in issuing an
order, which was affirmed by respondent Court of Appeals, denying the Tolentinos' petition for relief from judgment
for lack of merit, the same being supported by substantial evidence.
IN VIEW OF THE FOREGOING CONSIDERATIONS, the appealed consolidated decision and resolution of the Court
of Appeals are hereby MODIFIED and judgment is hereby rendered authorizing the petitioners to redeem the
properties subject matter hereof, other than the homestead land, within thirty (30) days from entry of judgment, and
ordering private respondent BPI to execute a deed of absolute conveyance thereof in favor of the petitioners upon
payment by the latter of the purchase price thereof, with 1% per month interest thereon in addition, up to the time of
redemption, together with the amount of any taxes or assessments which BPI may have paid thereon after purchase,
if any. In all other respects, the aforesaid consolidated decision and resolution of the Court of Appeals are hereby
AFFIRMED. No pronouncement as to costs at this instance.
SO ORDERED.
Barredo, (Chairman), Aquino, Concepcion, Jr. and Abad Santos, JJ., concur.

G.R. No. L-78412 September 26, 1989
TRADERS ROYAL BANK, petitioner,
vs.
THE HONORABLE COURT OF APPEALS, HON. BALTAZAR M. DIZON, Presiding Judge, Regional Trial Court,
Branch 113, Pasay City and ALFREDO CHING, respondents.
San Juan, Africa, Gonzalez and San Agustin for petitioner.
Balgos and Perez for respondents.

GRINO-AQUINO, J .:
This petition for certiorari assails the Court of Appeals' decision dated April 29, 1987 in CA-G.R. SP No. 03593,
entitled "Alfredo Ching vs. Hon. Baltazar M. Dizon and Traders Royal Bank" nullifying the Regional Trial Court's
orders dated August 15,1983 and May 24,1984 and prohibiting it from further proceeding in Civil Case No. 1028-P.
On March 30,1982, the Philippine Blooming Mills, Inc. (PBM) and Alfredo Ching jointly submitted to the Securities and
Exchange Commission a petition for suspension of payments (SEC No. 2250) where Alfredo Ching was joined as co-
petitioner because under the law, he was allegedly entitled, as surety, to avail of the defenses of PBM and he was
expected to raise most of the stockholders' equity of Pl00 million being required under the plan for the rehabilitation of
PBM. Traders Royal Bank was included among PBM's creditors named in Schedule A accompanying PBM's petition
for suspension of payments.
On May 13, 1983, the petitioner bank filed Civil Case No. 1028-P in the Regional Trial Court, Branch CXIII in Pasay
City, against PBM and Alfredo Ching, to collect P22,227,794.05 exclusive of interests, penalties and other bank
charges representing PBM's outstanding obligation to the bank. Alfredo Ching, a stockholder of PBM, was impleaded
as co-defendant for having signed as a surety for PBM's obligations to the extent of ten million pesos (Pl0,000,000)
under a Deed of Suretyship dated July 21, 1977.
In its en banc decision in SEC-EB No. 018 (Chung Ka Bio, et al. vs. Hon. Antonio R. Manabat, et al.), the SEC
declared that it had assumed jurisdiction over petitioner Alfredo Ching pursuant to Section 6, Rule 3 of the new Rules
of Procedure of the SEC providing that "parties in interest without whom no final determination can be had of an
action shall be joined either as complainant, petitioner or respondent" to prevent multiplicity of suits.
On July 9, 1982, the SEC issued an Order placing PBM's business, including its assets and liabilities, under
rehabilitation receivership, and ordered that "all actions for claims listed in Schedule A of the petition pending before
any court or tribunal are hereby suspended in whatever stage the same may be, until further orders from the
Commission" (p. 22, Rollo). As directed by the SEC, said order was published once a week for three consecutive
weeks in the Bulletin Today, Philippine Daily Express and Times Journal at the expense of PBM and Alfredo Ching.
PBM and Ching jointly filed a motion to dismiss Civil Case No. 1028-P in the RTC, Pasay City, invoking the pendency
in the SEC of PBM's application for suspension of payments (which Ching co-signed) and over which the SEC had
already assumed jurisdiction.
Before the motion to dismiss could be resolved, the court dropped PBM from the complaint, on motion of the plaintiff
bank, for the reason that the SEC had already placed PBM under rehabilitation receivership.
On August 15, 1983, the trial court denied Ching's motion to dismiss the complaint against himself. The court pointed
out that "P.D. 1758 is only concerned with the activities of corporations, partnerships and associations. Never was it
intended to regulate and/or control activities of individuals" (p.11, Rollo). Ching's motion for reconsideration of that
order was denied on May 24,1984. Respondent Judge argued that under P ' D. 902-A, as amended, the SEC may
not validly acquire jurisdiction over an individual, like Ching (p. 62, Rollo).
Ching filed a petition for certiorari and prohibition in the Court of Appeals (CA-G.R. SP No. 03593) to annul the orders
of respondent Judge and to prohibit him from further proceeding in the civil case.
The main issue raised in the petition was whether the court a quo could acquire jurisdiction over Ching in his personal
and individual capacity as a surety of PBM in the collection suit filed by the bank, despite the fact that PBM's
obligation to the bank had been placed under receivership by the SEC.
On April 29, 1987, the Court of Appeals granted the writs prayed for. It nullified the questioned orders of respondent
Judge and prohibited him from further proceeding in Civil Case No. 1028-P, except to enter an order dismissing the
case. The pertinent ruling of the Court of Appeals reads:
In sum, since the SEC had assumed jurisdiction over petitioner in SEC Case No. 2250 and
reiterating the propriety of such assumption in SEC-EB No. 018; and since under PD 902-A, as
amended by PD 1758, ... upon appointment of a ... rehabilitation receiver... pursuant to this Decree,
all actions for claims against corporation ... under management or receivership pending before any
court, tribunal, board or body shall be suspended accordingly ... respondent judge clearly acted
without jurisdiction in taking cognizance of the civil case in the court a quo brought by respondent
bank to enforce the surety agreement against petitioner for the purpose of collecting payment of
PBM's outstanding obligations. Respondent bank should have questioned the SEC's assumption of
jurisdiction over petitioner in an appellate forum and not in the court a quo, a tribunal with which the
SEC enjoys a co-equal and coordinate rank. (p. 27, Rollo.)
The Bank assails that decision in this petition for review alleging that the appellate court erred;
1. in holding that jurisdiction over respondent Alfredo Ching was assumed by the SEC because he
was a co-signer or surety of PBM and that the lower court may not assume jurisdiction over him so
as to avoid multiplicity of suits; and
2. in holding that the jurisdiction assumed by the SEC over Ching was to the exclusion of courts or
tribunals of coordinate rank.
The petition for review is meritorious.
Although Ching was impleaded in SEC Case No. 2250, as a co-petitioner of PBM, the SEC could not assume
jurisdiction over his person and properties. The Securities and Exchange Commission was empowered, as
rehabilitation receiver, to take custody and control of the assets and properties of PBM only, for the SEC has
jurisdiction over corporations only not over private individuals, except stockholders in an intra-corporate dispute (Sec.
5, P.D. 902-A and Sec. 2 of P.D. 1758). Being a nominal party in SEC Case No. 2250, Ching's properties were not
included in the rehabilitation receivership that the SEC constituted to take custody of PBM's assets. Therefore, the
petitioner bank was not barred from filing a suit against Ching, as a surety for PBM. An anomalous situation would
arise if individual sureties for debtor corporations may escape liability by simply co- filing with the corporation a
petition for suspension of payments in the SEC whose jurisdiction is limited only to corporations and their corporate
assets.
The term "parties-in-interest" in Section 6, Rule 3 of the SEC's New Rules of Procedure contemplates only private
individuals sued or suing as stockholders, directors, or officers of a corporation.
Ching can be sued separately to enforce his liability as surety for PBM, as expressly provided by Article 1216 of the
New Civil Code:
ART. 1216. The creditor may proceed against any of the solidary debtors or all of them
simultaneously. The demand made against one of them shall not be an obstacle to those which
may subsequently be directed against the others, as long as the debt has not been fully collected.
It is elementary that a corporation has a personality distinct and separate from its individual stockholders or members.
Being an officer or stockholder of a corporation does not make one's property the property also of the corporation, for
they are separate entities (Adelio Cruz vs. Quiterio Dalisay, 152 SCRA 482).
Ching's act of joining as a co-petitioner with PBM in SEC Case No. 2250 did not vest in the SEC jurisdiction over his
person or property, for jurisdiction does not depend on the consent or acts of the parties but upon express provision
of law (Tolentino vs. Social Security System, 138 SCRA 428; Lee vs. Municipal Trial Court of Legaspi City, Br. I, 145
SCRA 408).
WHEREFORE, the petition for review is granted. The decision of the Court of Appeals in CA-G.R. SP No. 03593 is
set aside. Respondent Judge of the Regional Trial Court in Pasay City is ordered to reinstate Civil Case No. 1028-P
and to proceed therein against the private respondent Alfredo Ching. Costs against the private respondent.
SO ORDERED.
Narvasa, Cruz, Gancayco and Medialdea, JJ., concur.

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:
I
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.
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, Grio-Aquino, Medialdea and Regalado, JJ., concur.

[G.R. No. 112392. February 29, 2000]
BANK OF THE PHILIPPINE ISLANDS, petitioner, vs. COURT OF
APPEALS and BENJAMIN C. NAPIZA, respondents.
D E C I S I O N
YNARES-SANTIAGO, J .:
This is a petition for review on certiorari of the Decision
[1]
of the Court of
Appeals in CA-G.R. CV No. 37392 affirming in toto that of the Regional Trial
Court of Makati, Branch 139,
[2]
which dismissed the complaint filed by petitioner
Bank of the Philippine Islands against private respondent Benjamin C. Napiza
for sum of money. Sdaad
On September 3, 1987, private respondent deposited in Foreign Currency
Deposit Unit (FCDU) Savings Account No. 028-187
[3]
which he maintained in
petitioner banks Buendia Avenue Extension Branch, Continental Bank
Managers Check No. 00014757
[4]
dated August 17, 1984, payable to "cash" in
the amount of Two Thousand Five Hundred Dollars ($2,500.00) and duly
endorsed by private respondent on its dorsal side.
[5]
It appears that the check
belonged to a certain Henry Chan who went to the office of private respondent
and requested him to deposit the check in his dollar account by way of
accommodation and for the purpose of clearing the same. Private respondent
acceded, and agreed to deliver to Chan a signed blank withdrawal slip, with
the understanding that as soon as the check is cleared, both of them would go
to the bank to withdraw the amount of the check upon private respondents
presentation to the bank of his passbook.
Using the blank withdrawal slip given by private respondent to Chan, on
October 23, 1984, one Ruben Gayon, Jr. was able to withdraw the amount of
$2,541.67 from FCDU Savings Account No. 028-187. Notably, the withdrawal
slip shows that the amount was payable to Ramon A. de Guzman and Agnes
C. de Guzman and was duly initialed by the branch assistant manager,
Teresita Lindo.
[6]

On November 20, 1984, petitioner received communication from the Wells
Fargo Bank International of New York that the said check deposited by private
respondent was a counterfeit check
[7]
because it was "not of the type or style of
checks issued by Continental Bank International."
[8]
Consequently, Mr. Ariel
Reyes, the manager of petitioners Buendia Avenue Extension Branch,
instructed one of its employees, Benjamin D. Napiza IV, who is private
respondents son, to inform his father that the check bounced.
[9]
Reyes himself
sent a telegram to private respondent regarding the dishonor of the check. In
turn, private respondents son wrote to Reyes stating that the check had been
assigned "for encashment" to Ramon A. de Guzman and/or Agnes C. de
Guzman after it shall have been cleared upon instruction of Chan. He also
said that upon learning of the dishonor of the check, his father immediately
tried to contact Chan but the latter was out of town.
[10]

Private respondents son undertook to return the amount of $2,500.00 to
petitioner bank. On December 18, 1984, Reyes reminded private respondent
of his sons promise and warned that should he fail to return that amount
within seven (7) days, the matter would be referred to the banks lawyers for
appropriate action to protect the banks interest.
[11]
This was followed by a letter
of the banks lawyer dated April 8, 1985 demanding the return of the
$2,500.00.
[12]

In reply, private respondent wrote petitioners counsel on April 20,
1985
[13]
stating that he deposited the check "for clearing purposes" only to
accommodate Chan. He added:
"Further, please take notice that said check was deposited on
September 3, 1984 and withdrawn on October 23, 1984, or a total
period of fifty (50) days had elapsed at the time of withdrawal.
Also, it may not be amiss to mention here that I merely signed an
authority to withdraw said deposit subject to its clearing, the
reason why the transaction is not reflected in the passbook of the
account. Besides, I did not receive its proceeds as may be
gleaned from the withdrawal slip under the captioned signature of
recipient.
If at all, my obligation on the transaction is moral in nature, which
(sic) I have been and is (sic) still exerting utmost and maximum
efforts to collect from Mr. Henry Chan who is directly liable under
the circumstances. Scsdaad
xxx......xxx......xxx."
On August 12, 1986, petitioner filed a complaint against private respondent,
praying for the return of the amount of $2,500.00 or the prevailing peso
equivalent plus legal interest from date of demand to date of full payment, a
sum equivalent to 20% of the total amount due as attorney's fees, and
litigation and/or costs of suit.
Private respondent filed his answer, admitting that he indeed signed a "blank"
withdrawal slip with the understanding that the amount deposited would be
withdrawn only after the check in question has been cleared. He likewise
alleged that he instructed the party to whom he issued the signed blank
withdrawal slip to return it to him after the bank drafts clearance so that he
could lend that party his passbook for the purpose of withdrawing the amount
of $2,500.00. However, without his knowledge, said party was able to
withdraw the amount of $2,541.67 from his dollar savings account through
collusion with one of petitioners employees. Private respondent added that he
had "given the Plaintiff fifty one (51) days with which to clear the bank draft in
question." Petitioner should have disallowed the withdrawal because his
passbook was not presented. He claimed that petitioner had no one to blame
except itself "for being grossly negligent;" in fact, it had allegedly admitted
having paid the amount in the check "by mistake" x x x "if not altogether due
to collusion and/or bad faith on the part of (its) employees." Charging
petitioner with "apparent ignorance of routine bank procedures," by way of
counterclaim, private respondent prayed for moral damages of P100,000.00,
exemplary damages of P50,000.00 and attorneys fees of 30% of whatever
amount that would be awarded to him plus an honorarium of P500.00 per
appearance in court.
Private respondent also filed a motion for admission of a third party complaint
against Chan. He alleged that "thru strategem and/or manipulation," Chan
was able to withdraw the amount of $2,500.00 even without private
respondents passbook. Thus, private respondent prayed that third party
defendant Chan be made to refund to him the amount withdrawn and to pay
attorneys fees of P5,000.00 plus P300.00 honorarium per appearance.
Petitioner filed a comment on the motion for leave of court to admit the third
party complaint, wherein it asserted that per paragraph 2 of the Rules and
Regulations governing BPI savings accounts, private respondent alone was
liable "for the value of the credit given on account of the draft or check
deposited." It contended that private respondent was estopped from
disclaiming liability because he himself authorized the withdrawal of the
amount by signing the withdrawal slip. Petitioner prayed for the denial of the
said motion so as not to unduly delay the disposition of the main case
asserting that private respondents claim could be ventilated in another case.
Private respondent replied that for the parties to obtain complete relief and to
avoid multiplicity of suits, the motion to admit third party complaint should be
granted. Meanwhile, the trial court issued orders on August 25, 1987 and
October 28, 1987 directing private respondent to actively participate in
locating Chan. After private respondent failed to comply, the trial court, on
May 18, 1988, dismissed the third party complaint without prejudice.
On November 4, 1991, a decision was rendered dismissing the complaint.
The lower court held that petitioner could not hold private respondent liable
based on the checks face value alone. To so hold him liable "would
render inutile the requirement of clearance from the drawee bank before the
value of a particular foreign check or draft can be credited to the account of a
depositor making such deposit." The lower court further held that "it was
incumbent upon the petitioner to credit the value of the check in question to
the account of the private respondent only upon receipt of the notice of final
payment and should not have authorized the withdrawal from the latters
account of the value or proceeds of the check." Having admitted that it
committed a "mistake" in not waiting for the clearance of the check before
authorizing the withdrawal of its value or proceeds, petitioner should suffer the
resultant loss. Supremax
On appeal, the Court of Appeals affirmed the lower courts decision. The
appellate court held that petitioner committed "clear gross negligence" in
allowing Ruben Gayon, Jr. to withdraw the money without presenting private
respondents passbook and, before the check was cleared and in crediting the
amount indicated therein in private respondents account. It stressed that the
mere deposit of a check in private respondents account did not mean that the
check was already private respondents property. The check still had to be
cleared and its proceeds can only be withdrawn upon presentation of a
passbook in accordance with the banks rules and regulations. Furthermore,
petitioners contention that private respondent warranted the checks
genuineness by endorsing it is untenable for it would render useless the
clearance requirement. Likewise, the requirement of presentation of a
passbook to ascertain the propriety of the accounting reflected would be a
meaningless exercise. After all, these requirements are designed to protect
the bank from deception or fraud.
The Court of Appeals cited the case of Roman Catholic Bishop of Malolos,
Inc. v. IAC,
[14]
where this Court stated that a personal check is not legal tender
or money, and held that the check deposited in this case must be cleared
before its value could be properly transferred to private respondent's account.
Without filing a motion for the reconsideration of the Court of Appeals
Decision, petitioner filed this petition for review on certiorari, raising the
following issues:
1.......WHETHER OR NOT RESPONDENT NAPIZA IS LIABLE
UNDER HIS WARRANTIES AS A GENERAL INDORSER.
2.......WHETHER OR NOT A CONTRACT OF AGENCY WAS
CREATED BETWEEN RESPONDENT NAPIZA AND RUBEN
GAYON.
3.......WHETHER OR NOT PETITIONER WAS GROSSLY
NEGLIGENT IN ALLOWING THE WITHDRAWAL.
Petitioner claims that private respondent, having affixed his signature at the
dorsal side of the check, should be liable for the amount stated therein in
accordance with the following provision of the Negotiable Instruments Law
(Act No. 2031):
"SEC. 66. Liability of general indorser. Every indorser who
indorses without qualification, warrants to all subsequent holders
in due course
(a)......The matters and things mentioned in subdivisions (a), (b),
and (c) of the next preceding section; and
(b)......That the instrument is at the time of his indorsement, valid
and subsisting.
And, in addition, he engages that on due presentment, it shall be
accepted or paid, or both, as the case may be, according to its
tenor, and that if it be dishonored, and the necessary proceedings
on dishonor be duly taken, he will pay the amount thereof to the
holder, or to any subsequent indorser who may be compelled to
pay it."
Section 65, on the other hand, provides for the following warranties of a
person negotiating an instrument by delivery or by qualified indorsement: (a)
that the instrument is genuine and in all respects what it purports to be; (b)
that he has a good title to it, and (c) that all prior parties had capacity to
contract.
[15]
In People v. Maniego,
[16]
this Court described the liabilities of an
indorser as follows: Juris
"Appellants contention that as mere indorser, she may not be
liable on account of the dishonor of the checks indorsed by her, is
likewise untenable. Under the law, the holder or last indorsee of a
negotiable instrument has the right to enforce payment of the
instrument for the full amount thereof against all parties liable
thereon. Among the parties liable thereon is an indorser of the
instrument, i.e., a person placing his signature upon an
instrument otherwise than as a maker, drawer or acceptor * *
unless he clearly indicated by appropriate words his intention to
be bound in some other capacity. Such an indorser who indorses
without qualification, inter aliaengages that on due presentment,
* * (the instrument) shall be accepted or paid, or both, as the case
may be, according to its tenor, and that if it be dishonored, and
the necessary proceedings on dishonor be duly taken, he will pay
the amount thereof to the holder, or any subsequent indorser who
may be compelled to pay it. Maniego may also be deemed an
accommodation party in the light of the facts, i.e., a person who
has signed the instrument as maker, drawer, acceptor, or
indorser, without receiving value therefor, and for the purpose of
lending his name to some other person. As such, she is under the
law liable on the instrument to a holder for value, notwithstanding
such holder at the time of taking the instrument knew * * (her) to
be only an accommodation party, although she has the right, after
paying the holder, to obtain reimbursement from the party
accommodated, since the relation between them is in effect that
of principal and surety, the accommodation party being the
surety."
It is thus clear that ordinarily private respondent may be held liable as an
indorser of the check or even as an accommodation party.
[17]
However, to hold
private respondent liable for the amount of the check he deposited by the
strict application of the law and without considering the attending
circumstances in the case would result in an injustice and in the erosion of the
public trust in the banking system. The interest of justice thus demands
looking into the events that led to the encashment of the check.
Petitioner asserts that by signing the withdrawal slip, private respondent
"presented the opportunity for the withdrawal of the amount in question."
Petitioner relied "on the genuine signature on the withdrawal slip, the
personality of private respondents son and the lapse of more than fifty (50)
days from date of deposit of the Continental Bank draft, without the same
being returned yet."
[18]
We hold, however, that the propriety of the withdrawal
should be gauged by compliance with the rules thereon that both petitioner
bank and its depositors are duty-bound to observe.
In the passbook that petitioner issued to private respondent, the following
rules on withdrawal of deposits appear:
"4.......Withdrawals must be made by the depositor personally but
in some exceptional circumstances, the Bank may allow
withdrawal by another upon the depositors written authority duly
authenticated; and neither a deposit nor a withdrawal will be
permitted except upon the presentation of the depositors savings
passbook, in which the amount deposited withdrawn shall be
entered only by the Bank.
5.......Withdrawals may be made by draft, mail or telegraphic
transfer in currency of the account at the request of the depositor
in writing on the withdrawal slip or by authenticated cable. Such
request must indicate the name of the payee/s, amount and the
place where the funds are to be paid. Any stamp, transmission
and other charges related to such withdrawals shall be for the
account of the depositor and shall be paid by him/her upon
demand. Withdrawals may also be made in the form of travellers
checks and in pesos. Withdrawals in the form of notes/bills are
allowed subject however, to their (availability).
6.......Deposits shall not be subject to withdrawal by check, and
may be withdrawn only in the manner above provided, upon
presentation of the depositors savings passbook and with the
withdrawal form supplied by the Bank at the counter."
[19]
Scjuris
Under these rules, to be able to withdraw from the savings account deposit
under the Philippine foreign currency deposit system, two requisites must be
presented to petitioner bank by the person withdrawing an amount: (a) a duly
filled-up withdrawal slip, and (b) the depositors passbook. Private respondent
admits that he signed a blank withdrawal slip ostensibly in violation of Rule
No. 6 requiring that the request for withdrawal must name the payee, the
amount to be withdrawn and the place where such withdrawal should be
made. That the withdrawal slip was in fact a blank one with only private
respondents two signatures affixed on the proper spaces is buttressed by
petitioners allegation in the instant petition that had private respondent
indicated therein the person authorized to receive the money, then Ruben
Gayon, Jr. could not have withdrawn any amount. Petitioner contends that
"(i)n failing to do so (i.e., naming his authorized agent), he practically
authorized any possessor thereof to write any amount and to collect the
same."
[20]

Such contention would have been valid if not for the fact that the withdrawal
slip itself indicates a special instruction that the amount is payable to "Ramon
A. de Guzman &/or Agnes C. de Guzman." Such being the case, petitioners
personnel should have been duly warned that Gayon, who was also employed
in petitioners Buendia Ave. Extension branch,
[21]
was not the proper payee of
the proceeds of the check. Otherwise, either Ramon or Agnes de Guzman
should have issued another authority to Gayon for such withdrawal. Of
course, at the dorsal side of the withdrawal slip is an "authority to withdraw"
naming Gayon the person who can withdraw the amount indicated in the
check. Private respondent does not deny having signed such authority.
However, considering petitioners clear admission that the withdrawal slip was
a blank one except for private respondents signature, the unavoidable
conclusion is that the typewritten name of "Ruben C. Gayon, Jr." was
intercalated and thereafter it was signed by Gayon or whoever was allowed by
petitioner to withdraw the amount. Under these facts, there could not have
been a principal-agent relationship between private respondent and Gayon so
as to render the former liable for the amount withdrawn.
Moreover, the withdrawal slip contains a boxed warning that states: "This
receipt must be signed and presented with the corresponding foreign currency
savings passbook by the depositor in person. For withdrawals thru a
representative, depositor should accomplish the authority at the back." The
requirement of presentation of the passbook when withdrawing an amount
cannot be given mere lip service even though the person making the
withdrawal is authorized by the depositor to do so. This is clear from Rule No.
6 set out by petitioner so that, for the protection of the banks interest and as a
reminder to the depositor, the withdrawal shall be entered in the depositors
passbook. The fact that private respondents passbook was not presented
during the withdrawal is evidenced by the entries therein showing that the last
transaction that he made with the bank was on September 3, 1984, the date
he deposited the controversial check in the amount of $2,500.00.
[22]

In allowing the withdrawal, petitioner likewise overlooked another rule that is
printed in the passbook. Thus:
"2.......All deposits will be received as current funds and will be
repaid in the same manner; provided, however, that deposits
of drafts, checks, money orders, etc. will be accepted as subject
to collection only and credited to the account only upon receipt of
the notice of final payment. Collection charges by the Banks
foreign correspondent in effecting such collection shall be for the
account of the depositor. If the account has sufficient balance, the
collection shall be debited by the Bank against the account. If, for
any reason, the proceeds of the deposited checks, drafts, money
orders, etc., cannot be collected or if the Bank is required to return
such proceeds, the provisional entry therefor made by the Bank in
the savings passbook and its records shall be deemed
automatically cancelled regardless of the time that has elapsed,
and whether or not the defective items can be returned to the
depositor; and the Bank is hereby authorized to execute
immediately the necessary corrections, amendments or changes
in its record, as well as on the savings passbook at the first
opportunity to reflect such cancellation." (Italics and underlining
supplied.) Jurissc
As correctly held by the Court of Appeals, in depositing the check in his name,
private respondent did not become the outright owner of the amount stated
therein. Under the above rule, by depositing the check with petitioner, private
respondent was, in a way, merely designating petitioner as the collecting
bank. This is in consonance with the rule that a negotiable instrument, such as
a check, whether a managers check or ordinary check, is not legal
tender.
[23]
As such, after receiving the deposit, under its own rules, petitioner
shall credit the amount in private respondents account or infuse value thereon
only after the drawee bank shall have paid the amount of the check or the
check has been cleared for deposit. Again, this is in accordance with ordinary
banking practices and with this Courts pronouncement that "the collecting
bank or last endorser generally suffers the loss because it has the duty to
ascertain the genuineness of all prior endorsements considering that the act
of presenting the check for payment to the drawee is an assertion that the
party making the presentment has done its duty to ascertain the genuineness
of the endorsements."
[24]
The rule finds more meaning in this case where the
check involved is drawn on a foreign bank and therefore collection is more
difficult than when the drawee bank is a local one even though the check in
question is a managers check.
[25]
Misjuris
In Banco Atlantico v. Auditor General,
[26]
Banco Atlantico, a commercial bank in
Madrid, Spain, paid the amounts represented in three (3) checks to Virginia
Boncan, the finance officer of the Philippine Embassy in Madrid. The bank did
so without previously clearing the checks with the drawee bank, the Philippine
National Bank in New York, on account of the "special treatment" that Boncan
received from the personnel of Banco Atlanticos foreign department. The
Court held that the encashment of the checks without prior clearance is
"contrary to normal or ordinary banking practice specially so where the
drawee bank is a foreign bank and the amounts involved were large."
Accordingly, the Court approved the Auditor Generals denial of Banco
Atlanticos claim for payment of the value of the checks that was withdrawn by
Boncan.
Said ruling brings to light the fact that the banking business is affected with
public interest. By the nature of its functions, a bank is under obligation to
treat the accounts of its depositors "with meticulous care, always having in
mind the fiduciary nature of their relationship."
[27]
As such, in dealing with its
depositors, a bank should exercise its functions not only with the diligence of a
good father of a family but it should do so with the highest degree of care.
[28]

In the case at bar, petitioner, in allowing the withdrawal of private
respondents deposit, failed to exercise the diligence of a good father of a
family. In total disregard of its own rules, petitioners personnel negligently
handled private respondents account to petitioners detriment. As this Court
once said on this matter:
"Negligence is the omission to do something which a reasonable
man, guided by those considerations which ordinarily regulate the
conduct of human affairs, would do, or the doing of something
which a prudent and reasonable man would do. The seventy-eight
(78)-year-old, yet still relevant, case of Picart v. Smith, provides
the test by which to determine the existence of negligence in a
particular case which may be stated as follows: Did the defendant
in doing the alleged negligent act use that reasonable care and
caution which an ordinarily prudent person would have used in the
same situation? If not, then he is guilty of negligence. The law
here in effect adopts the standard supposed to be supplied by the
imaginary conduct of the discreet pater-familias of the Roman law.
The existence of negligence in a given case is not determined by
reference to the personal judgment of the actor in the situation
before him. The law considers what would be reckless,
blameworthy, or negligent in the man of ordinary intelligence and
prudence and determines liability by that."
[29]

Petitioner violated its own rules by allowing the withdrawal of an amount that
is definitely over and above the aggregate amount of private respondents
dollar deposits that had yet to be cleared. The banks ledger on private
respondents account shows that before he deposited $2,500.00, private
respondent had a balance of only $750.00.
[30]
Upon private respondents
deposit of $2,500.00 on September 3, 1984, that amount was credited in his
ledger as a deposit resulting in the corresponding total balance of
$3,250.00.
[31]
On September 10, 1984, the amount of $600.00 and the
additional charges of $10.00 were indicated therein as withdrawn thereby
leaving a balance of $2,640.00. On September 30, 1984, an interest of $11.59
was reflected in the ledger and on October 23, 1984, the amount of $2,541.67
was entered as withdrawn with a balance of $109.92.
[32]
On November 19,
1984 the word "hold" was written beside the balance of $109.92.
[33]
That must
have been the time when Reyes, petitioners branch manager, was informed
unofficially of the fact that the check deposited was a counterfeit, but
petitioners Buendia Ave. Extension Branch received a copy of the
communication thereon from Wells Fargo Bank International in New York the
following day, November 20, 1984.
[34]
According to Reyes, Wells Fargo Bank
International handled the clearing of checks drawn against U.S. banks that
were deposited with petitioner.
[35]
Jjlex
From these facts on record, it is at once apparent that petitioners personnel
allowed the withdrawal of an amount bigger than the original deposit of
$750.00 and the value of the check deposited in the amount of $2,500.00
although they had not yet received notice from the clearing bank in the United
States on whether or not the check was funded. Reyes contention that after
the lapse of the 35-day period the amount of a deposited check could be
withdrawn even in the absence of a clearance thereon, otherwise it could take
a long time before a depositor could make a withdrawal,
[36]
is untenable. Said
practice amounts to a disregard of the clearance requirement of the banking
system.
While it is true that private respondents having signed a blank withdrawal slip
set in motion the events that resulted in the withdrawal and encashment of the
counterfeit check, the negligence of petitioners personnel was the proximate
cause of the loss that petitioner sustained. Proximate cause, which is
determined by a mixed consideration of logic, common sense, policy and
precedent, is "that cause, which, in natural and continuous sequence,
unbroken by any efficient intervening cause, produces the injury, and without
which the result would not have occurred."
[37]
The proximate cause of the
withdrawal and eventual loss of the amount of $2,500.00 on petitioners part
was its personnels negligence in allowing such withdrawal in disregard of its
own rules and the clearing requirement in the banking system. In so doing,
petitioner assumed the risk of incurring a loss on account of a forged or
counterfeit foreign check and hence, it should suffer the resulting damage.
WHEREFORE, the petition for review on certiorari is DENIED. The Decision
of the Court of Appeals in CA-G.R. CV No. 37392 is AFFIRMED.
SO ORDERED. Newmiso
Davide, Jr., C.J., (Chairman), Puno, Kapunan, and Pardo, JJ., concur.