CODE OF COMMERCE

CHAN WAN vs TAN KIM

FACTS:
Tan Kim and her husband (Chen So) issued 11 checks payable to “cash or bearer” to be drawn against
their account with the Equitable Banking Corporation. The checks were negotiated to the White House Shoe
Supply (company). White House then deposited the checks to their China Bank account. China Bank then
presented the checks to Equitable Bank but the checks were returned because Equitable Bank then had no
funds to cover the checks. China Bank then stamped the checks with “Account Closed” and “Non negotiable –
China Bank Corporation”.
But somehow, Chan Wan got hold of these checks (Chan Wan was not able to explain in court how he got hold
of the checks). Chan Wan now wants to encash the checks but Equitable Bank refused accept the said
checks.

ISSUE: Whether or not Chan Wan is a holder in due course.

HELD:
No. As a general rule, a dishonored check/instrument may still be negotiated either by indorsement or
delivery and the holder may be a holder in due course provided that he received no notice regarding the
dishonor of the instrument. In this case, the checks were already crossed on their face hence Chan Wan was
properly notified of the dishonor of the checks at the time of his acquisition.

But may Chan Wan still recover?

Yes. The Negotiable Instruments Law does not provide that a holder who is not a holder in due course,
may not in any case, recover on the instrument. The holder may recover directly from the drawee, in this case
Tan Kim and Chen So, unless the drawees have a valid excuse in refusing payment. The only disadvantage of
a holder who is not a holder in due course is that the negotiable instrument is subject to defense as if it were
non- negotiable. The case was remanded to the lower court for a proper determination as to how Chan Wan
acquired the checks and to determine if he is indeed entitled to payment based on some other transactions
involving those checks.

NEW CIVIL CODE

METROPOLITAN BANK AND TRUST CO. vs. CA

FACTS:

Gomez opened an account with Golden Savings bank and deposited 38 treasury warrants. All these
warrants were indorsed by the cashier of Golden Savings, and deposited it to the savings account in
a Metrobank branch. They were sent later on for clearing by the branch office to the principal office
of Metrobank, which forwarded them to the Bureau of Treasury for special clearing. On persistent
inquiries on whether the warrants have been cleared, the branch manager allowed withdrawal of the
warrants, only to find out later on that the treasury warrants have been
dishonored.

HELD:

The treasury warrants were not negotiable instruments. Clearly, it is indicated that it was non-
negotiable and of equal significance is the indication that they are payable from a particular fund,
Fund 501. This indication as the source of payment to be made on the treasury warrant
makes the promise to pay conditional and the warrants themselves non-negotiable.

Metrobank then cannot contend that by indorsing the warrants in general, GS assumed that they were genuine
and in all respects what they purport it to be, in accordance to Section 66 of the NIL. The simple reason is that
the law isn’t applicable to the non-negotiable treasury warrants. The indorsement was made for the
purpose of merely depositing them with Metrobank for clearing. It was in fact Metrobank which
stamped on the back of the warrants: “All prior indorsements and/or lack of endorsements guaranteed…”
G.R. No. 88866 February 18, 1991

METROPOLITAN BANK & TRUST COMPANY, petitioner,

vs.
COURT OF APPEALS, GOLDEN SAVINGS & LOAN ASSOCIATION, INC., LUCIA CASTILLO, MAGNO
CASTILLO and GLORIA CASTILLO, respondents.

Angara, Abello, Concepcion, Regala & Cruz for petitioner.

Bengzon, Zarraga, Narciso, Cudala, Pecson & Bengson for Magno and Lucia Castillo.
Agapito S. Fajardo and Jaime M. Cabiles for respondent Golden Savings & Loan Association, Inc.

CRUZ, J.:

This case, for all its seeming complexity, turns on a simple question of negligence. The facts, pruned of all non-
essentials, are easily told.

The Metropolitan Bank and Trust Co. is a commercial bank with branches throughout the Philippines and even
abroad. Golden Savings and Loan Association was, at the time these events happened, operating in Calapan,
Mindoro, with the other private respondents as its principal officers.

In January 1979, a certain Eduardo Gomez opened an account with Golden Savings and deposited over a
period of two months 38 treasury warrants with a total value of P1,755,228.37. They were all drawn by the
Philippine Fish Marketing Authority and purportedly signed by its General Manager and countersigned by its
Auditor. Six of these were directly payable to Gomez while the others appeared to have been indorsed by their
respective payees, followed by Gomez as second indorser.1

On various dates between June 25 and July 16, 1979, all these warrants were subsequently indorsed by Gloria
Castillo as Cashier of Golden Savings and deposited to its Savings Account No. 2498 in the Metrobank branch
in Calapan, Mindoro. They were then sent for clearing by the branch office to the principal office of Metrobank,
which forwarded them to the Bureau of Treasury for special clearing.2

More than two weeks after the deposits, Gloria Castillo went to the Calapan branch several times to ask
whether the warrants had been cleared. She was told to wait. Accordingly, Gomez was meanwhile not allowed
to withdraw from his account. Later, however, "exasperated" over Gloria's repeated inquiries and also as an
accommodation for a "valued client," the petitioner says it finally decided to allow Golden Savings to withdraw
from the proceeds of the
warrants.3

The first withdrawal was made on July 9, 1979, in the amount of P508,000.00, the second on July 13, 1979, in
the amount of P310,000.00, and the third on July 16, 1979, in the amount of P150,000.00. The total withdrawal
was P968.000.00.4

In turn, Golden Savings subsequently allowed Gomez to make withdrawals from his own account, eventually
collecting the total amount of P1,167,500.00 from the proceeds of the apparently cleared warrants. The last
withdrawal was made on July 16, 1979.

On July 21, 1979, Metrobank informed Golden Savings that 32 of the warrants had been dishonored by the
Bureau of Treasury on July 19, 1979, and demanded the refund by Golden Savings of the amount it had
previously withdrawn, to make up the deficit in its account.

The demand was rejected. Metrobank then sued Golden Savings in the Regional Trial Court of Mindoro.5 After
trial, judgment was rendered in favor of Golden Savings, which, however, filed a motion for reconsideration
even as Metrobank filed its notice of appeal. On November 4, 1986, the lower court modified its decision thus:

ACCORDINGLY, judgment is hereby rendered:

1. Dismissing the complaint with costs against the plaintiff;

2. Dissolving and lifting the writ of attachment of the properties of defendant Golden Savings and Loan
Association, Inc. and defendant Spouses Magno Castillo and Lucia Castillo;

3. Directing the plaintiff to reverse its action of debiting Savings Account No. 2498 of the sum of
P1,754,089.00 and to reinstate and credit to such account such amount existing before the debit was
made including the amount of P812,033.37 in favor of defendant Golden Savings and Loan
Association, Inc. and thereafter, to allow defendant Golden Savings and Loan Association, Inc. to
withdraw the amount outstanding thereon before the debit;
 4. Ordering the plaintiff to pay the defendant Golden Savings and Loan Association, Inc. attorney's fees
and expenses of litigation in the amount of P200,000.00.

5. Ordering the plaintiff to pay the defendant Spouses Magno Castillo and Lucia Castillo attorney's fees
and expenses of litigation in the amount of P100,000.00.

SO ORDERED.

On appeal to the respondent court,6 the decision was affirmed, prompting Metrobank to file this petition for
review on the following grounds:

1. Respondent Court of Appeals erred in disregarding and failing to apply the clear contractual terms
and conditions on the deposit slips allowing Metrobank to charge back any amount erroneously
credited.

(a) Metrobank's right to charge back is not limited to instances where the checks or treasury
warrants are forged or unauthorized.

(b) Until such time as Metrobank is actually paid, its obligation is that of a mere collecting agent
which cannot be held liable for its failure to collect on the warrants.

2. Under the lower court's decision, affirmed by respondent Court of Appeals, Metrobank is made to
pay for warrants already dishonored, thereby perpetuating the fraud committed by Eduardo Gomez.

3. Respondent Court of Appeals erred in not finding that as between Metrobank and Golden Savings,
the latter should bear the loss.

4. Respondent Court of Appeals erred in holding that the treasury warrants involved in this case are not
negotiable instruments.

The petition has no merit.

From the above undisputed facts, it would appear to the Court that Metrobank was indeed negligent in giving
Golden Savings the impression that the treasury warrants had been cleared and that, consequently, it was safe
to allow Gomez to withdraw the proceeds thereof from his account with it. Without such assurance, Golden
Savings would not have allowed the withdrawals; with such assurance, there was no reason not to allow the
withdrawal. Indeed, Golden Savings might even have incurred liability for its refusal to return the money that to
all appearances belonged to the depositor, who could therefore withdraw it any time and for any reason he saw
fit.

It was, in fact, to secure the clearance of the treasury warrants that Golden Savings deposited them to its
account with Metrobank. Golden Savings had no clearing facilities of its own. It relied on Metrobank to
determine the validity of the warrants through its own services. The proceeds of the warrants were withheld
from Gomez until Metrobank allowed Golden Savings itself to withdraw them from its own deposit. 7 It was only
when Metrobank gave the go-signal that Gomez was finally allowed by Golden Savings to withdraw them from
his own account.

The argument of Metrobank that Golden Savings should have exercised more care in checking the personal
circumstances of Gomez before accepting his deposit does not hold water. It was Gomez who was entrusting
the warrants, not Golden Savings that was extending him a loan; and moreover, the treasury warrants were
subject to clearing, pending which the depositor could not withdraw its proceeds. There was no question of
Gomez's identity or of the genuineness of his signature as checked by Golden Savings. In fact, the treasury
warrants were dishonored allegedly because of the forgery of the signatures of the drawers, not of Gomez as
payee or indorser. Under the circumstances, it is clear that Golden Savings acted with due care and diligence
and cannot be faulted for the withdrawals it allowed Gomez to make.

By contrast, Metrobank exhibited extraordinary carelessness. The amount involved was not trifling — more
than one and a half million pesos (and this was 1979). There was no reason why it should not have waited until
the treasury warrants had been cleared; it would not have lost a single centavo by waiting. Yet, despite the lack
of such clearance — and notwithstanding that it had not received a single centavo from the proceeds of the
treasury warrants, as it now repeatedly stresses — it allowed Golden Savings to withdraw — not once, not
twice, but thrice — from the uncleared treasury warrants in the total amount of P968,000.00
Its reason? It was "exasperated" over the persistent inquiries of Gloria Castillo about the clearance and it also
wanted to "accommodate" a valued client. It "presumed" that the warrants had been cleared simply because of
"the lapse of one week."8 For a bank with its long experience, this explanation is unbelievably naive.

And now, to gloss over its carelessness, Metrobank would invoke the conditions printed on the dorsal side of
the deposit slips through which the treasury warrants were deposited by Golden Savings with its Calapan
branch. The conditions read as follows:

Kindly note that in receiving items on deposit, the bank obligates itself only as the depositor's collecting
agent, assuming no responsibility beyond care in selecting correspondents, and until such time as
actual payment shall have come into possession of this bank, the right is reserved to charge back to the
depositor's account any amount previously credited, whether or not such item is returned. This also
applies to checks drawn on local banks and bankers and their branches as well as on this bank, which
are unpaid due to insufficiency of funds, forgery, unauthorized overdraft or any other reason. (Emphasis
supplied.)

According to Metrobank, the said conditions clearly show that it was acting only as a collecting agent for
Golden Savings and give it the right to "charge back to the depositor's account any amount previously credited,
whether or not such item is returned. This also applies to checks ". . . which are unpaid due to insufficiency of
funds, forgery, unauthorized overdraft of any other reason." It is claimed that the said conditions are in the
nature of contractual stipulations and became binding on Golden Savings when Gloria Castillo, as its Cashier,
signed the deposit slips.

Doubt may be expressed about the binding force of the conditions, considering that they have apparently been
imposed by the bank unilaterally, without the consent of the depositor. Indeed, it could be argued that the
depositor, in signing the deposit slip, does so only to identify himself and not to agree to the conditions set forth
in the given permit at the back of the deposit slip. We do not have to rule on this matter at this time. At any
rate, the Court feels that even if the deposit slip were considered a contract, the petitioner could still not validly
disclaim responsibility thereunder in the light of the circumstances of this case.

In stressing that it was acting only as a collecting agent for Golden Savings, Metrobank seems to be
suggesting that as a mere agent it cannot be liable to the principal. This is not exactly true. On the contrary,
Article 1909 of the Civil Code clearly provides that —

Art. 1909. — The agent is responsible not only for fraud, but also for negligence, which shall be judged
'with more or less rigor by the courts, according to whether the agency was or was not for a
compensation.

The negligence of Metrobank has been sufficiently established. To repeat for emphasis, it was the clearance
given by it that assured Golden Savings it was already safe to allow Gomez to withdraw the proceeds of the
treasury warrants he had deposited Metrobank misled Golden Savings. There may have been no express
clearance, as Metrobank insists (although this is refuted by Golden Savings) but in any case that clearance
could be implied from its allowing Golden Savings to withdraw from its account not only once or even twice
but three times. The total withdrawal was in excess of its original balance before the treasury warrants were
deposited, which only added to its belief that the treasury warrants had indeed been cleared.

Metrobank's argument that it may recover the disputed amount if the warrants are not paid for any reason is
not acceptable. Any reason does not mean no reason at all. Otherwise, there would have been no need at all
for Golden Savings to deposit the treasury warrants with it for clearance. There would have been no need for it
to wait until the warrants had been cleared before paying the proceeds thereof to Gomez. Such a condition, if
interpreted in the way the petitioner suggests, is not binding for being arbitrary and unconscionable. And it
becomes more so in the case at bar when it is considered that the supposed dishonor of the warrants was not
communicated to Golden Savings before it made its own payment to Gomez.

The belated notification aggravated the petitioner's earlier negligence in giving express or at least implied
clearance to the treasury warrants and allowing payments therefrom to Golden Savings. But that is not all. On
top of this, the supposed reason for the dishonor, to wit, the forgery of the signatures of the general manager
and the auditor of the drawer corporation, has not been established.9 This was the finding of the lower courts
which we see no reason to disturb. And as we said in MWSS v. Court of Appeals:10

Forgery cannot be presumed (Siasat, et al. v. IAC, et al., 139 SCRA 238). It must be established by
clear, positive and convincing evidence. This was not done in the present case.

A no less important consideration is the circumstance that the treasury warrants in question are not negotiable
instruments. Clearly stamped on their face is the word "non-negotiable." Moreover, and this is of equal
significance, it is indicated that they are payable from a particular fund, to wit, Fund 501.
The following sections of the Negotiable Instruments Law, especially the underscored parts, are pertinent:

Sec. 1. — Form of negotiable instruments. — An instrument to be negotiable must conform to the

following requirements:

(a) It must be in writing and signed by the maker or drawer;

(b) Must contain an unconditional promise or order to pay a sum certain in money;

(c) Must be payable on demand, or at a fixed or determinable future time;

(d) Must be payable to order or to bearer; and

(e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein
with reasonable certainty.

xxx xxx xxx

Sec. 3. When promise is unconditional. — An unqualified order or promise to pay is unconditional within
the meaning of this Act though coupled with —

(a) An indication of a particular fund out of which reimbursement is to be made or a particular account
to be debited with the amount; or

(b) A statement of the transaction which gives rise to the instrument judgment.

But an order or promise to pay out of a particular fund is not unconditional.

The indication of Fund 501 as the source of the payment to be made on the treasury warrants makes the order
or promise to pay "not unconditional" and the warrants themselves non-negotiable. There should be no
question that the exception on Section 3 of the Negotiable Instruments Law is applicable in the case at bar.
This conclusion conforms to Abubakar vs. Auditor General11 where the Court held:

The petitioner argues that he is a holder in good faith and for value of a negotiable instrument and is
entitled to the rights and privileges of a holder in due course, free from defenses. But this treasury
warrant is not within the scope of the negotiable instrument law. For one thing, the document bearing
on its face the words "payable from the appropriation for food administration, is actually an Order for
payment out of "a particular fund," and is not unconditional and does not fulfill one of the essential
requirements of a negotiable instrument (Sec. 3 last sentence and section [1(b)] of the Negotiable
Instruments Law).

Metrobank cannot contend that by indorsing the warrants in general, Golden Savings assumed that they were
"genuine and in all respects what they purport to be," in accordance with Section 66 of the Negotiable
Instruments Law. The simple reason is that this law is not applicable to the non-negotiable treasury warrants.
The indorsement was made by Gloria Castillo not for the purpose of guaranteeing the genuineness of the
warrants but merely to deposit them with Metrobank for clearing. It was in fact Metrobank that made the
guarantee when it stamped on the back of the warrants: "All prior indorsement and/or lack of endorsements
guaranteed, Metropolitan Bank & Trust Co., Calapan Branch."

The petitioner lays heavy stress on Jai Alai Corporation v. Bank of the Philippine Islands,12 but we feel this
case is inapplicable to the present controversy.1âwphi1 That case involved checks whereas this case involves
treasury warrants. Golden Savings never represented that the warrants were negotiable but signed them only
for the purpose of depositing them for clearance. Also, the fact of forgery was proved in that case but not in the
case before us. Finally, the Court found the Jai Alai Corporation negligent in accepting the checks without
question from one Antonio Ramirez notwithstanding that the payee was the Inter-Island Gas Services, Inc. and
it did not appear that he was authorized to indorse it. No similar negligence can be imputed to Golden Savings.

We find the challenged decision to be basically correct. However, we will have to amend it insofar as it directs
the petitioner to credit Golden Savings with the full amount of the treasury checks deposited to its account.

The total value of the 32 treasury warrants dishonored was P1,754,089.00, from which Gomez was allowed to
withdraw P1,167,500.00 before Golden Savings was notified of the dishonor. The amount he has withdrawn
must be charged not to Golden Savings but to Metrobank, which must bear the consequences of its own
negligence. But the balance of P586,589.00 should be debited to Golden Savings, as obviously Gomez can no
longer be permitted to withdraw this amount from his deposit because of the dishonor of the warrants. Gomez
has in fact disappeared. To also credit the balance to Golden Savings would unduly enrich it at the expense of
Metrobank, let alone the fact that it has already been informed of the dishonor of the treasury warrants.

WHEREFORE, the challenged decision is AFFIRMED, with the modification that Paragraph 3 of the dispositive
portion of the judgment of the lower court shall be reworded as follows:

3. Debiting Savings Account No. 2498 in the sum of P586,589.00 only and thereafter allowing
defendant Golden Savings & Loan Association, Inc. to withdraw the amount outstanding thereon, if any,
after the debit.

SO ORDERED.

APPLICABILITY

KAUFFMAN vs PNB
FACTS:
Plaintiff was entitled to the sum of P98,000 from the surplus earnings of Philippine Fiber & Produce
Company (PFPC) which was placed to his credit on the company’s books. The PFPC treasurer requested from
PNB Manila that a telegraphic transfer of S45,000 should be made to the plaintiff in NY upon account of PFPC.
The treasurer drew and delivered a check for the amount of P90,355 on the PNB which is the total costs o said
transfer. As evidence, a document was made out and delivered to the PFPC treasurer which is referred to by
the bank’s assistant cashier as it’s official receipt. 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 receipt of the
telegraphic message, the bank’s representative advised the withholding of the money from Kauffman, in view
of his reluctance to accept certain bills of the PFPC. The PNB agreed and sent to its NY agency another
message to withhold the payment as suggested. Upon advice of the PFPC treasurer that S45,000 had been
placed to his credit, he presented himself at the PNB NY and demanded the money but was refused due to
the direction of the withholding of payment.
ISSUE: WON plaintiff has a right over the money withhold.
HELD:
No. Provisions of the NIL 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.
The order transmitted by PNB to its NY branch, for the payment of a specified sum of money to the plaintiff
was not made payable “to order” or “to bearer”, as required in subsection (d) of that Act; and inasmuch as it
never left he possession of the bank, or its representative in NY, there was no delivery in the sense intended in
section 16 of the same Law.
In connection, it is unnecessary to point out that the official receipt delivered by the bank to the purchaser of
the telegraphic order cannot itself be viewed in the light of a negotiable instrument, although it affords complete
proof of the obligation actually assumed by the bank.
GSIS vs CA
FACTS:
Spouses Racho together with Spouses Lagasca executed a deed of mortgage in favor of GSIS in connection
with 2 loans granted by the latter in the sums of p11,500.00 and p3,000.00, respectively. A parcel of land co-
owned by the mortgagor spouses was govern as security under the aforesaid deeds and executed a
promissory note promising to pay the said amounts to GSIS jointly, severally and solidarily. The Lagasca
spouses executed an instrument obligating themselves in the assumption of the aforesaid obligation and to
secure the release of the mortgage.
Failing to comply with the conditions of the mortgage, GSIS extrajudicially foreclosed the mortgage and caused
the property to be sold at public auction.
More than 2 years after, Spouses Racho filed a complaint against GSIS and Spouses Lagasca praying that
the extrajudicial foreclosure be declared null and void. They allege that they signed the mortgage contracts not
as sureties for the Lagasca spouses but merely as accommodation party
ISSUE: WON the promissory note and mortgage deeds are negotiable.
HELD: No. Section 29 of the NIL provides that an accommodation party is one who has signed an instrument
as maker, drawer, acceptor of indorser without receiving value therefore, but is held liable on the instrument to
a holder for value although the latter knew him to be only an accommodation party.
Both parties appears to be misdirected and their reliance misplaced. The promissory note, as well as the
mortgage deeds subject of this case, are clearly not negotiable instrument because it did not comply with the
fourth requisite to be considered as such under Sec. 1 of the NIL – they are neither payable to order nor to
bearer. The note is payable to a specified party, the GSIS.
CONCEPT OF NI
LEGAL TENDER-Legal tender is any official medium of payment recognized by law that can be used to
extinguish a public or private debt, or meet a financial obligation.

TIBAJIA vs CA

FACTS:
A suit of collection of sum of money was filed by Eden Tan against the spouses. A writ of attachment
was issued, the Deputy Sheriff filed a return stating that a deposit made by Tibajia in the amount of P442,750
in another case, had been garnished by him. RTC ruled in favor of Eden Tan and ordered the spouses to pay
her an amount in excess of P3,000,000. Court of Appeals modified the decision by reducing the amount for
damages. Tibajia Spouses delivered to Sheriff Bolima the total money judgment of P398483.70. Tan refused to
accept the payment and insisted that the garnished funds be withdrawn to satisfy the judgment obligation.

ISSUE: Whether or not payment by means of check is considered payment in legal tender

RULING:
The ruling applies the statutory provisions which lay down the rule that a check is not legal tender and
that a creditor may validly refuse payment by check, whether it be a manager’s check, cashier’s or personal
check. The decision of the court of Appeals is affirmed.

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

PHILIPPINE AIRLINES, INC., petitioner,

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

GUTIERREZ, JR., J.:

Behind the simple issue of validity of an alias writ of execution in this case is a more fundamental question.
Should the Court allow a too literal interpretation of the Rules with an open invitation to knavery to prevail over
a more discerning and just approach? Should we not apply the ancient rule of statutory construction that laws
are to be interpreted by the spirit which vivifies and not by the letter which killeth?

This is a petition to review on certiorari the decision of the Court of Appeals in CA-G.R. No. 07695 entitled
"Philippine Airlines, Inc. v. Hon. Judge Ricardo D. Galano, et al.", dismissing the petition for certiorari against
the order of the Court of First Instance of Manila which issued an alias writ of execution against the petitioner.

The petition involving the alias writ of execution had its beginnings on November 8, 1967, when respondent
Amelia Tan, under the name and style of Able Printing Press commenced a complaint for damages before the
Court of First Instance of Manila. The case was docketed as Civil Case No. 71307, entitled Amelia Tan, et al.
v. Philippine Airlines, Inc.

After trial, the Court of First Instance of Manila, Branch 13, then presided over by the late Judge Jesus P.
Morfe rendered judgment on June 29, 1972, in favor of private respondent Amelia Tan and against petitioner
Philippine Airlines, Inc. (PAL) as follows:

WHEREFORE, judgment is hereby rendered, ordering the defendant Philippine Air Lines:

1. On the first cause of action, to pay to the plaintiff the amount of P75,000.00 as actual
damages, with legal interest thereon from plaintiffs extra-judicial demand made by the letter of
July 20, 1967;
 2. On the third cause of action, to pay to the plaintiff the amount of P18,200.00, representing the
unrealized profit of 10% included in the contract price of P200,000.00 plus legal interest thereon
from July 20,1967;

3. On the fourth cause of action, to pay to the plaintiff the amount of P20,000.00 as and for
moral damages, with legal interest thereon from July 20, 1 967;

4. On the sixth cause of action, to pay to the plaintiff the amount of P5,000.00 damages as and
for attorney's fee.

Plaintiffs second and fifth causes of action, and defendant's counterclaim, are dismissed.

With costs against the defendant. (CA Rollo, p. 18)

On July 28, 1972, the petitioner filed its appeal with the Court of Appeals. The case was docketed as CA-G.R.
No. 51079-R.

On February 3, 1977, the appellate court rendered its decision, the dispositive portion of which reads:

IN VIEW WHEREOF, with the modification that PAL is condemned to pay plaintiff the sum of
P25,000.00 as damages and P5,000.00 as attorney's fee, judgment is affirmed, with costs. (CA Rollo,
p. 29)

Notice of judgment was sent by the Court of Appeals to the trial court and on dates subsequent thereto, a
motion for reconsideration was filed by respondent Amelia Tan, duly opposed by petitioner PAL.

On May 23,1977, the Court of Appeals rendered its resolution denying the respondent's motion for
reconsideration for lack of merit.

No further appeal having been taken by the parties, the judgment became final and executory and on May 31,
1977, judgment was correspondingly entered in the case.

The case was remanded to the trial court for execution and on September 2,1977, respondent Amelia Tan filed
a motion praying for the issuance of a writ of execution of the judgment rendered by the Court of Appeals. On
October 11, 1977, the trial court, presided over by Judge Galano, issued its order of execution with the
corresponding writ in favor of the respondent. The writ was duly referred to Deputy Sheriff Emilio Z. Reyes of
Branch 13 of the Court of First Instance of Manila for enforcement.

Four months later, on February 11, 1978, respondent Amelia Tan moved for the issuance of an alias writ of
execution stating that the judgment rendered by the lower court, and affirmed with modification by the Court of
Appeals, remained unsatisfied.

On March 1, 1978, the petitioner filed an opposition to the motion for the issuance of an alias writ of execution
stating that it had already fully paid its obligation to plaintiff through the deputy sheriff of the respondent court,
Emilio Z. Reyes, as evidenced by cash vouchers properly signed and receipted by said Emilio Z. Reyes.

On March 3,1978, the Court of Appeals denied the issuance of the alias writ for being premature, ordering the
executing sheriff Emilio Z. Reyes to appear with his return and explain the reason for his failure to surrender
the amounts paid to him by petitioner PAL. However, the order could not be served upon Deputy Sheriff Reyes
who had absconded or disappeared.

On March 28, 1978, motion for the issuance of a partial alias writ of execution was filed by respondent Amelia
Tan.

On April 19, 1978, respondent Amelia Tan filed a motion to withdraw "Motion for Partial Alias Writ of Execution"
with Substitute Motion for Alias Writ of Execution. On May 1, 1978, the respondent Judge issued an order
which reads:

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

Let an Alias Writ of Execution issue against the defendant for the fall satisfaction of the judgment
rendered. Deputy Sheriff Jaime K. del Rosario is hereby appointed Special Sheriff for the enforcement
thereof. (CA Rollo, p. 34)
On May 18, 1978, the petitioner received a copy of the first alias writ of execution issued on the same day
directing Special Sheriff Jaime K. del Rosario to levy on execution in the sum of P25,000.00 with legal interest
thereon from July 20,1967 when respondent Amelia Tan made an extra-judicial demand through a letter. Levy
was also ordered for the further sum of P5,000.00 awarded as attorney's fees.

On May 23, 1978, the petitioner filed an urgent motion to quash the alias writ of execution stating that no return
of the writ had as yet been made by Deputy Sheriff Emilio Z. Reyes and that the judgment debt had already
been fully satisfied by the petitioner as evidenced by the cash vouchers signed and receipted by the server of
the writ of execution, Deputy Sheriff Emilio Z. Reyes.

On May 26,1978, the respondent Jaime K. del Rosario served a notice of garnishment on the depository bank
of petitioner, Far East Bank and Trust Company, Rosario Branch, Binondo, Manila, through its manager and
garnished the petitioner's deposit in the said bank in the total amount of P64,408.00 as of May 16, 1978.
Hence, this petition for certiorari filed by the Philippine Airlines, Inc., on the grounds that:

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

ORIGINAL WRIT BY THE IMPLEMENTING OFFICER.

II

PAYMENT OF JUDGMENT TO THE IMPLEMENTING OFFICER AS DIRECTED IN THE WRIT OF

EXECUTION CONSTITUTES SATISFACTION OF JUDGMENT.

III

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

IV

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

DEBTOR AND DISPOSAL OR SALE THEREOF TO SATISFY JUDGMENT.

Can an alias writ of execution be issued without a prior return of the original writ by the implementing officer?

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

The issuance of the questioned alias writ of execution under the circumstances here obtaining is
justified because even with the absence of a Sheriffs return on the original writ, the unalterable fact
remains that such a return is incapable of being obtained (sic) because the officer who is to make the
said return has absconded and cannot be brought to the Court despite the earlier order of the court for
him to appear for this purpose. (Order of Feb. 21, 1978, Annex C, Petition). Obviously, taking
cognizance of this circumstance, the order of May 11, 1978 directing the issuance of an alias writ was
therefore issued. (Annex D. Petition). The need for such a return as a condition precedent for the
issuance of an alias writ was justifiably dispensed with by the court below and its action in this regard
meets with our concurrence. A contrary view will produce an abhorent situation whereby the mischief of
an erring officer of the court could be utilized to impede indefinitely the undisputed and awarded rights
which a prevailing party rightfully deserves to obtain and with dispatch. The final judgment in this case
should not indeed be permitted to become illusory or incapable of execution for an indefinite and over
extended period, as had already transpired. (Rollo, pp. 35-36)

Judicium non debet esse illusorium; suum effectum habere debet (A judgment ought not to be illusory it ought
to have its proper effect).

Indeed, technicality cannot be countenanced to defeat the execution of a judgment for execution is the fruit and
end of the suit and is very aptly called the life of the law (Ipekdjian Merchandising Co. v. Court of Tax Appeals,
8 SCRA 59 [1963]; Commissioner of Internal Revenue v. Visayan Electric Co., 19 SCRA 697, 698 [1967]). A
judgment cannot be rendered nugatory by the unreasonable application of a strict rule of procedure. Vested
rights were never intended to rest on the requirement of a return, the office of which is merely to inform the
court and the parties, of any and all actions taken under the writ of execution. Where such information can be
established in some other manner, the absence of an executing officer's return will not preclude a judgment
from being treated as discharged or being executed through an alias writ of execution as the case may be.
More so, as in the case at bar. Where the return cannot be expected to be forthcoming, to require the same
would be to compel the enforcement of rights under a judgment to rest on an impossibility, thereby allowing the
total avoidance of judgment debts. So long as a judgment is not satisfied, a plaintiff is entitled to other writs of
execution (Government of the Philippines v. Echaus and Gonzales, 71 Phil. 318). It is a well known legal
maxim that he who cannot prosecute his judgment with effect, sues his case vainly.

More important in the determination of the propriety of the trial court's issuance of an alias writ of execution is
the issue of satisfaction of judgment.

Under the peculiar circumstances surrounding this case, did the payment made to the absconding sheriff by
check in his name operate to satisfy the judgment debt? The Court rules that the plaintiff who has won her
case should not be adjudged as having sued in vain. To decide otherwise would not only give her an empty but
a pyrrhic victory.

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

She filed her complaint in 1967.

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

It is now 1990.

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

Under the peculiar circumstances of this case, the payment to the absconding sheriff by check in his name did
not operate as a satisfaction of the judgment debt.

In general, a payment, in order to be effective to discharge an obligation, must be made to the proper person.
Article 1240 of the Civil Code provides:

Payment shall be made to the person in whose favor the obligation has been constituted, or his
successor in interest, or any person authorized to receive it. (Emphasis supplied)

Thus, payment must be made to the obligee himself or to an agent having authority, express or implied, to
receive the particular payment (Ulen v. Knecttle 50 Wyo 94, 58 [2d] 446, 111 ALR 65). Payment made to one
having apparent authority to receive the money will, as a rule, be treated as though actual authority had been
given for its receipt. Likewise, if payment is made to one who by law is authorized to act for the creditor, it will
work a discharge (Hendry v. Benlisa 37 Fla. 609, 20 SO 800,34 LRA 283). The receipt of money due on
ajudgment by an officer authorized by law to accept it will, therefore, satisfy the debt (See 40 Am Jm 729, 25;
Hendry v. Benlisa supra; Seattle v. Stirrat 55 Wash. 104 p. 834,24 LRA [NS] 1275).

The theory is where payment is made to a person authorized and recognized by the creditor, the payment to
such a person so authorized is deemed payment to the creditor. Under ordinary circumstances, payment by
the judgment debtor in the case at bar, to the sheriff should be valid payment to extinguish the judgment debt.

There are circumstances in this case, however, which compel a different conclusion.

The payment made by the petitioner to the absconding sheriff was not in cash or legal tender but in checks.
The checks were not payable to Amelia Tan or Able Printing Press but to the absconding sheriff.

Did such payments extinguish the judgment debt?

Article 1249 of the Civil Code provides:

The payment of debts in money shall be made in the currency stipulated, and if it is not possible to
deliver such currency, then in the currency which is legal tender in the Philippines.

The delivery of promissory notes payable to order, or bills of exchange or other mercantile documents
shall produce the effect of payment only when they have been cashed, or when through the fault of the
creditor they have been impaired.

In the meantime, the action derived from the original obligation shall be held in abeyance.
In the absence of an agreement, either express or implied, payment means the discharge of a debt or
obligation in money (US v. Robertson, 5 Pet. [US] 641, 8 L. ed. 257) and unless the parties so agree, a debtor
has no rights, except at his own peril, to substitute something in lieu of cash as medium of payment of his debt
(Anderson v. Gill, 79 Md.. 312, 29 A 527, 25 LRA 200,47 Am. St. Rep. 402). Consequently, unless authorized
to do so by law or by consent of the obligee a public officer has no authority to accept anything other than
money in payment of an obligation under a judgment being executed. Strictly speaking, the acceptance by the
sheriff of the petitioner's checks, in the case at bar, does not, per se, operate as a discharge of the judgment
debt.

Since a negotiable instrument is only a substitute for money and not money, the delivery of such an instrument
does not, by itself, operate as payment (See. 189, Act 2031 on Negs. Insts.; Art. 1249, Civil Code; Bryan
Landon Co. v. American Bank, 7 Phil. 255; Tan Sunco v. Santos, 9 Phil. 44; 21 R.C.L. 60, 61). A check,
whether a manager's check or ordinary cheek, is not legal tender, and an offer of a check in payment of a debt
is not a valid tender of payment and may be refused receipt by the obligee or creditor. Mere delivery of checks
does not discharge the obligation under a judgment. The obligation is not extinguished and remains suspended
until the payment by commercial document is actually realized (Art. 1249, Civil Code, par. 3).

If bouncing checks had been issued in the name of Amelia Tan and not the Sheriff's, there would have been no
payment. After dishonor of the checks, Ms. Tan could have run after other properties of PAL. The theory is that
she has received no value for what had been awarded her. Because the checks were drawn in the name of
Emilio Z. Reyes, neither has she received anything. The same rule should apply.

It is argued that if PAL had paid in cash to Sheriff Reyes, there would have been payment in full legal
contemplation. The reasoning is logical but is it valid and proper? Logic has its limits in decision making. We
should not follow rulings to their logical extremes if in doing so we arrive at unjust or absurd results.

In the first place, PAL did not pay in cash. It paid in cheeks.

And second, payment in cash always carries with it certain cautions. Nobody hands over big amounts of cash
in a careless and inane manner. Mature thought is given to the possibility of the cash being lost, of the bearer
being waylaid or running off with what he is carrying for another. Payment in checks is precisely intended to
avoid the possibility of the money going to the wrong party. The situation is entirely different where a Sheriff
seizes a car, a tractor, or a piece of land. Logic often has to give way to experience and to reality. Having paid
with checks, PAL should have done so properly.

Payment in money or cash to the implementing officer may be deemed absolute payment of the judgment debt
but the Court has never, in the least bit, suggested that judgment debtors should settle their obligations by
turning over huge amounts of cash or legal tender to sheriffs and other executing officers. Payment in cash
would result in damage or interminable litigations each time a sheriff with huge amounts of cash in his hands
decides to abscond.

As a protective measure, therefore, the courts encourage the practice of payments by cheek provided
adequate controls are instituted to prevent wrongful payment and illegal withdrawal or disbursement of funds. If
particularly big amounts are involved, escrow arrangements with a bank and carefully supervised by the court
would be the safer procedure. Actual transfer of funds takes place within the safety of bank premises. These
practices are perfectly legal. The object is always the safe and incorrupt execution of the judgment.

It is, indeed, out of the ordinary that checks intended for a particular payee are made out in the name of
another. Making the checks payable to the judgment creditor would have prevented the encashment or the
taking of undue advantage by the sheriff, or any person into whose hands the checks may have fallen, whether
wrongfully or in behalf of the creditor. The issuance of the checks in the name of the sheriff clearly made
possible the misappropriation of the funds that were withdrawn.

As explained and held by the respondent court:

... [K]nowing as it does that the intended payment was for the private party respondent Amelia Tan, the
petitioner corporation, utilizing the services of its personnel who are or should be knowledgeable about
the accepted procedures and resulting consequences of the checks drawn, nevertheless, in this
instance, without prudence, departed from what is generally observed and done, and placed as payee
in the checks the name of the errant Sheriff and not the name of the rightful payee. Petitioner thereby
created a situation which permitted the said Sheriff to personally encash said checks and
misappropriate the proceeds thereof to his exclusive personal benefit. For the prejudice that resulted,
the petitioner himself must bear the fault. The judicial guideline which we take note of states as follows:

As between two innocent persons, one of whom must suffer the consequence of a breach of trust, the
one who made it possible by his act of confidence must bear the loss. (Blondeau, et al. v. Nano, et al.,
L-41377, July 26, 1935, 61 Phil. 625)
Having failed to employ the proper safeguards to protect itself, the judgment debtor whose act made possible
the loss had but itself to blame. The attention of this Court has been called to the bad practice of a number of
executing officers, of requiring checks in satisfaction of judgment debts to be made out in their own names. If a
sheriff directs a judgment debtor to issue the checks in the sheriff's name, claiming he must get his
commission or fees, the debtor must report the sheriff immediately to the court which ordered the execution or
to the Supreme Court for appropriate disciplinary action. Fees, commissions, and salaries are paid through
regular channels. This improper procedure also allows such officers, who have sixty (60) days within which to
make a return, to treat the moneys as their personal finds and to deposit the same in their private accounts to
earn sixty (60) days interest, before said finds are turned over to the court or judgment creditor (See Balgos v.
Velasco, 108 SCRA 525 [1981]). Quite as easily, such officers could put up the defense that said checks had
been issued to them in their private or personal capacity. Without a receipt evidencing payment of the
judgment debt, the misappropriation of finds by such officers becomes clean and complete. The practice is
ingenious but evil as it unjustly enriches court personnel at the expense of litigants and the proper
administration of justice. The temptation could be far greater, as proved to be in this case of the absconding
sheriff. The correct and prudent thing for the petitioner was to have issued the checks in the intended payee's
name. The pernicious effects of issuing checks in the name of a person other than the intended payee, without
the latter's agreement or consent, are as many as the ways that an artful mind could concoct to get around the
safeguards provided by the law on negotiable instruments. An angry litigant who loses a case, as a rule, would
not want the winning party to get what he won in the judgment. He would think of ways to delay the winning
party's getting what has been adjudged in his favor. We cannot condone that practice especially in cases
where the courts and their officers are involved.1âwphi1 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.