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1. Philippine Airlines v.

CA if payment is made to one who by law is authorized to act for the


creditor, it will work a discharge. The receipt of money due on a
Doctrine judgment by an officer authorized by law to accept it will,
therefore, satisfy the debt.
As a rule, a payment, in order to be effective to discharge an
obligation, must be made to the proper person. The theory is where payment is made to a person authorized
and recognized by the creditor, the payment to such a person
Moreover, in the absence of an agreement, either express or so authorized is deemed payment to the creditor. Under ordinary
implied, payment means the discharge of a debt or obligation in circumstances, payment by the judgment debtor in the case at
money and unless the parties so agree, a debtor has no rights, bar, to the sheriff should be valid payment to extinguish the
except at his own peril, to substitute something in lieu of cash as judgment debt.
medium of payment of his debt
However, there are circumstances in this case, which compel a
Facts different conclusion.

Here, Amelia Tan (respondent), under the name and style of The payment made by the petitioner to the absconding
Able Printing Press commenced a complaint for damages sheriff was not in cash or legal tender but in checks. The
against PAL. checks were not payable to Amelia Tan or Able Printing
Press but to the absconding sheriff.
After trial, the Court of First Instance rendered judgment, in favor
of Tan and against petitioner Philippine Airlines, Inc. (PAL) Article 1249 of the Civil Code provides:

Such decision was affirmed by the CA. Subsequently, the The payment of debts in money shall be
judgment became final and executory and on May 31, 1977, made in the currency stipulated, and if it
judgment was correspondingly entered in the case. is not possible to deliver such currency,
then in the currency which is legal tender
Now, Tan filed a motion praying for the issuance of a writ of in the Philippines.
execution of the judgment rendered by the Court of Appeals. On
October 11, 1977, the trial court, issued its order of execution The delivery of promissory notes payable
with the corresponding writ in favor of Tan. The writ was duly to order, or bills of exchange or other
referred to Deputy Sheriff Emilio Z. Reyes for enforcement. mercantile documents shall produce the
effect of payment only when they have
Four months later, on February 11, 1978, respondent Amelia been cashed, or when through the fault
Tan moved for the issuance of an alias writ of execution stating of the creditor they have been impaired.
that the judgment rendered by the lower court, and affirmed with
modification by the Court of Appeals, remained unsatisfied. In the meantime, the action derived from
the original obligation shall be held in
Contention abeyance.

PAL contended that it had already fully paid its obligation to Further, the Supreme court said, in the absence of an
plaintiff through the deputy sheriff of the respondent court, agreement, either express or implied, payment means the
Emilio Z. Reyes, as evidenced by cash vouchers properly signed discharge of a debt or obligation in money and unless the parties
and receipted by said Emilio Z. Reyes. so agree, a debtor has no rights, except at his own peril, to
substitute something in lieu of cash as medium of payment of
Issue his debt.

Whether or not the payment made to the absconding sheriff by Consequently, unless authorized to do so by law or by consent
check in his name operate to satisfy the judgment debt. of the obligee a public officer has no authority to accept anything
other than money in payment of an obligation under a judgment
Held being executed. Strictly speaking, the acceptance by the sheriff
of the petitioner's checks, in the case at bar, does not, per se,
No. The Supreme Court said, under the peculiar circumstances operate as a discharge of the judgment debt.
of this case, the payment to the absconding sheriff by check in
his name did not operate as a satisfaction of the judgment debt. Since according to the Court that a negotiable instrument is only
a substitute for money and not money, the delivery of such an
In general, a payment, in order to be effective to discharge an instrument does not, by itself, operate as payment. A check,
obligation, must be made to the proper person. Article 1240 of whether a manager's check or ordinary cheek, is not legal tender,
the Civil Code provides: 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.
Payment shall be made to the person in Mere delivery of checks does not discharge the obligation under
whose favor the obligation has been a judgment. The obligation is not extinguished and remains
constituted, or his successor in interest, suspended until the payment by commercial document is
or any person authorized to receive it. actually realized (Art. 1249, Civil Code, par. 3).

Thus, payment must be made to the obligee himself or to an The Court further said that, if bouncing checks had been issued
agent having authority, express or implied, to receive the in the name of Amelia Tan and not the Sheriff's, there would
particular payment. Payment made to one having apparent have been no payment. After dishonor of the checks, Ms. Tan
authority to receive the money will, as a rule, be treated as could have run after other properties of PAL. The theory is that
though actual authority had been given for its receipt. Likewise, 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. Having failed to employ the proper safeguards to protect itself,
the judgment debtor (herein PAL) whose act made possible the
It is argued that if PAL had paid in cash to Sheriff Reyes, there loss had but itself to blame.
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 checks.

And second, payment in cash always carries with it certain


cautions. Nobody hands over big amounts of cash in a careless
and inane manner. Mature thought is given to the possibility of
the cash being lost, of the bearer being waylaid or running off
with what he is carrying for another. Payment in checks is
precisely intended to avoid the possibility of the money going to
the wrong party. 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 check 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.
Far East Bank & Trust Company v. Diaz Held

Doctrine Yes. The Supreme Court said, true, jurisprudence holds that, in
general, a check does not constitute legal tender, and that a
For a valid tender of payment, it is necessary that there be a creditor may validly refuse it. It must be emphasized, however,
fusion of intent, ability and capability to make good such offer, that this dictum does not prevent a creditor from accepting a
which must be absolute and must cover the amount due. check as payment. In other words, the creditor has
Though a check is not legal tender, and a creditor may validly the option and the discretion of refusing or accepting it.
refuse to accept it if tendered as payment, one who in fact
accepted a fully' funded check after the debtor's manifestation "In the present case, petitioner bank did not refuse respondent's
that it had been given to settle an obligation is estopped from check. On the contrary, it accepted the check which, it insisted,
later on denouncing the efficacy of such tender of payment. was a deposit. As earlier stated, the check proved to be fully
funded and was in fact honored by the drawee bank. Moreover,
Facts petitioner was in possession of the money for several months.

Here, petitioner Far East bank purchased respondent's (Diaz In further contending that there was no valid tender of payment,
Realty Inc.) account from Pacific Banking Corporation (PaBC) in petitioner emphasizes our pronouncement in Roman Catholic
December 1986, and that the latter was notified of the Bishop of Malolos, Inc. v. Intermediate Appellate Court, as
transaction only on March 23, 1988. Thereafter, Antonio Diaz, follows:
president of respondent corporation, inquired from petitioner
bank on the status and the amount of its obligation. He was "Tender of payment involves a positive and unconditional act by
informed that the obligation summed up to P1,447,142.03. the obligor of offering legal tender currency as payment to the
obligee for the former's obligation and demanding that the latter
On November 14, 1988, petitioner, received from respondent accept the same.
Interbank Check No. 81399841 dated November 13, 1988,
bearing the amount of P1,450,000, with the notation "Re: Full xxx xxx xxx
Payment of Pacific Bank Account now turn[ed] over to Far East
Bank." The check was subsequently cleared and honored by "Thus, tender of payment cannot be presumed by a mere
Interbank, as shown by the Certification it issued on January 20, inference from surrounding circumstances. At most, sufficiency
1992. 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
Now, in the meantime, Diaz wrote the defendant, asking that the obligor avails himself of such funds to settle his outstanding
interest rate be reduced from 20% to 12% per annum, but no account remains to be proven by independent and credible
reply was ever made; that subsequently, the defendant told him evidence. Tender of payment presupposes not only that the
to change the P1,450,000.00 deposit into a money market obligor is able, ready, and willing, but more so, in the act of
placement, which he did; that the money market placement performing his obligation. Ab posse ad actu non vale illatio. 'A
expired on April 14, 1989; that when there was still no news from proof that an act could have been done is no proof that it was
the defendant whether or not it [would] accept his tender of actually done."'
payment, he filed this case at the Regional Trial Court of Davao
City. In other words, tender of payment is the definitive act of offering
the creditor what is due him or her, together with the demand
that the creditor accept the same. More important, there must
Lower Courts be a fusion of intent, ability and capability to make good such
offer, which must be absolute and must cover the amount due.
The RTC ruled in favor of Diaz.
That respondent intended to settle its obligation with petitioner
The CA sustained the trial court's finding that there was a valid is evident from the records of the case. After learning that its
tender of payment in the sum of P1,450,000, made by Diaz loan balance was P1,447,142.03, it presented to petitioner a
Realty Inc. in favor of Far East Bank and Trust Company. The check in the amount of P1,450,000, with the specific notation
appellate court reasoned that petitioner failed to effectively rebut that it was for full payment of its Pacific Bank account that had
respondent's evidence that it so tendered the check to liquidate been purchased by petitioner. The latter accepted the check,
its indebtedness, and that petitioner had unilaterally treated the even if it now insists that it considered the same as a mere
same as a deposit instead. deposit. The check was sufficiently funded, as in fact it was
honored by the drawee bank. When petitioner refused to release
Contention the mortgage, respondent instituted the present case to compel
the bank to acknowledge the tender of payment, accept
Petitioner argues that the CA erred in upholding the validity of payment and cancel the mortgage. These acts demonstrate
the tender of payment made by Diaz. According to the petitioner respondent's intent, ability and capability to fully settle and
what Diaz had tendered to settle its outstanding obligation, it extinguish its obligation to petitioner.
points out, was a check which could not be considered legal
tender. That respondent subsequently withdrew the money from
petitioner-bank is of no moment, because such withdrawal
Issue would not affect the efficacy or the legal ramifications of the
tender of payment made on November 14, 1988. As already
Whether or not there was a valid tender of payment in this case. discussed, the tender of payment to settle respondent's
obligation as computed by petitioner was accepted, the check
given in payment thereof converted into money, and the money
kept in petitioner's possession for several months.
Finally, petitioner points out that, in any case, tender of
payment extinguishes the obligation only after proper
consignation, which respondent did not do.

The argument does not persuade. For a consignation to be


necessary, the creditor must have refused, without just cause,
to accept the debtor's payment. However, as pointed out earlier,
petitioner accepted respondent's check.

Furthermore, the Court said, to reiterate, the tender was made


by respondent for the purpose of settling its obligation. It was
incumbent upon petitioner to refuse or accept it as payment. The
latter did not have the right or the option to accept and treat it as
a deposit. Thus, by accepting the tendered
check and converting it into money, petitioner is presumed to
have accepted it as payment. To hold otherwise would be
inequitable and unfair to the obligor.