G.R. No. 93397. March 3, 1997.

*
TRADERS ROYAL BANK, petitioner, vs. COURT OF APPEALS, FILRITERS GUARANTY ASSURANCE
CORPORATION and CENTRAL BANK of the PHILIPPINES, respondents.
Loans; Negotiable Instruments; Certificates of Indebtedness; Bonds; Words and Phrases; A certificate of
indebtedness which pertains to certificates for the creation and maintenance of a permanent
improvement revolving fund, is similar to a bond.Properly understood, a certificate of indebtedness
pertains to certificates for the creation and maintenance of a permanent improvement revolving fund,
and is similar to a bond, (82 Minn. 202). Being equivalent to a bond, it is properly understood as an
acknowledgment of an obligation to pay a fixed sum of money. It is usually used for the purpose of
long term loans.
Same; Same; Same; The language of negotiability which characterizes a negotiable paper as a credit
instrument is its freedom to circulate as a substitute for money.The language of negotiability which
characterize a negotiable paper as a credit instrument is its freedom to circulate as a substitute for
money. Hence, freedom of negotiability is the touchstone relating to the protection of holders in due
course, and the freedom of negotiability is the foundation for the protection which the law throws
around a holder in due course (11 Am. Jur. 2d, 32). This freedom in negotiability is totally absent in a
certificate of indebtedness as it merely acknowledges to pay a sum of money to a specified person or
entity for a period of time.
Corporation Law; Piercing the Veil of Corporate Fiction; Piercing the veil of corporate entity requires the
court to see through the protective shroud which exempts its stockholders from liabilities that
ordinarily, they could be subject to, or distinguishes one corporation from a seemingly separate one,
were it not for the existing corporate fiction.Petitioner cannot put up the excuse of piercing the veil of
corporate entity, as this is merely an equitable remedy, and may be awarded only in cases when the
corporate fiction is used to defeat public convenience, justify wrong, protect fraud or defend crime or
where a corporation is a mere alter ego or business conduit of a person. Piercing the veil of corporate
entity requires the court to see through the protective shroud which exempts its stockholders from
liabilities that ordinarily, they could be subject to, or distinguishes one corporation from a seemingly
separate one, were it not for the existing corporate fiction. But to do this, the court must be sure that
the corporate fiction was misused, to such an extent that injustice, fraud, or crime was committed
upon another, disregarding, thus, his, her, or its rights. It is the protection of the interests of innocent
third persons dealing with the corporate entity which the law aims to protect by this doctrine.
Same; Same; Mere ownership by a single stockholder or by another corporation of all or nearly all of
the capital stock of a corporation is not of itself a sufficient reason for disregarding the fiction of
separate corporate personalities.Though it is true that when valid reasons exist, the legal fiction that
a corporation is an entity with a juridical personality separate from its stockholders and from other
corporations may be disregarded, in the absence of such grounds, the general rule must be upheld.
The fact that Philfinance owns majority shares in Filriters is not by itself a ground to disregard the
independent corporate status of Filriters. In Liddel & Co., Inc. vs. Collector of Internal Revenue, the
mere ownership by a single stockholder or by another corporation of all or nearly all of the capital
stock of a corporation is not of itself a sufficient reason for disregarding the fiction of separate
corporate personalities.
Same; Same; An entity which deals with corporate agents within circumstances showing that the
agents are acting in excess of corporate authority may not hold the corporation liable.Petitioner,
being a commercial bank, cannot feign ignorance of Central Bank Circular 769, and its requirements.
An entity which deals with corporate agents within circumstances showing that the agents are acting
in excess of corporate authority, may not hold the corporation liable. This is only fair, as everyone
must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone
his due, and observe honesty and good faith.
Sales; Where the sale from one person to another was fictitious, as there was no consideration, and
therefore void and inexistent, the latter has no title to convey to third persons.The transfer made by
Filriters to Philfinance did not conform to the said Central Bank Circular, which for all intents, is
considered part of the law. As found by the courts a quo, Alfredo O. Banaria, who had signed the deed
of assignment from Filriters to Philfinance, purportedly for and in favor of Filriters, did not have the
necessary written authorization from the Board of Directors of Filriters to act for the latter. As it is, the
sale from Filriters to Philfinance was fictitious, and therefore void and inexistent, as there was no
consideration for the same. This is fatal to the petitioners cause, for then, Philfinance had no title over

the subject certificate to convey to Traders Royal Bank. Nemo potest nisi quod de jure potestno man
can do anything except what he can do lawfully.
PETITION for review on certiorari of a decision of the Court of Appeals.

The facts are stated in the opinion of the Court.

Gonzales, Sinense, Jimenez & Associates for petitioner.
Jaime M. Cabiles for Central Bank of the Philippines.
Ruben L. Almadro for respondent Filriters.
TORRES, JR., J.:
Assailed in this Petition for Review on Certiorari is the Decision of the respondent Court of Appeals
dated January 29, 1990,1 affirming the nullity of the transfer of Central Bank Certificate of
Indebtedness (CBCI) No. D891,2 with a face value of P500,000, from the Philippine Underwriters
Finance Corporation (Philfinance) to the petitioner Traders Royal Bank (TRB), under a Repurchase
Agreement3 dated February 4, 1981, and a Detached Assignment4 dated April 27, 1981.
Docketed as Civil Case No. 83-17966 in the Regional Trial Court of Manila, Branch 32, the action was
originally filed as a Petition for Mandamus5 under Rule 65 of the Rules of Court, to compel the Central
Bank of the Philippines to register the transfer of the subject CBCI to petitioner Traders Royal Bank
(TRB).
In the said petition, TRB stated that:
3. On November 27, 1979, Filriters Guaranty Assurance Corporation (Filriters) executed a Detached
Assignment x x x, whereby Filriters, as registered owner, sold, transferred, assigned and delivered
unto Philippine Underwriters Finance Corporation (Philfinance) all its rights and title to Central Bank
Certificates of Indebtedness (CBCI) Nos. D890 to D896, inclusive, each in the denomination of PESOS:
FIVE HUNDRED THOUSAND (P500,000.00) and having an aggregate value of PESOS: THREE MILLION
FIVE HUNDRED THOUSAND (P3,500,000.00);
4. The aforesaid Detached Assignment (Annex A) contains an express authorization executed by the
transferor intended to complete the assignment through the registration of the transfer in the name of
PhilFinance, which authorization is specifically phrased as follows: (Filriters) hereby irrevocably
authorized the said issuer (Central Bank) to transfer the said bond/certificates on the books of its fiscal
agent;
5. On February 4, 1981, petitioner entered into a Repurchase Agreement with PhilFinance x x x,
whereby, for and in consideration of the sum of PESOS: FIVE HUNDRED THOUSAND (P500,000.00),
PhilFinance sold, transferred and delivered to petitioner CBCI 4-year, 8th series, Serial No. D891 with a
face value of P500,000.00 x x x, which CBCI was among those previously acquired by PhilFinance from
Filriters as averred in paragraph 3 of the Petition;
6. Pursuant to the aforesaid Repurchase Agreement (Annex B), Philfinance agreed to repurchase CBCI
Serial No. D891 (Annex C), at the stipulated price of PESOS: FIVE HUNDRED NINETEEN THOUSAND
THREE HUNDRED SIXTY-ONE & 11/100 (P519,361.11) on April 27, 1981;
7. PhilFinance failed to repurchase the CBCI on the agreed date of maturity, April 27, 1981, when the
checks it issued in favor of petitioner were dishonored for insufficient funds;
8. Owing to the default of PhilFinance, it executed a Detached Assignment in favor of the Petitioner to
enable the latter to have its title completed and registered in the books of the respondent. And by
means of said Detachment Assignment, Philfinance transferred and assigned all its rights and title in
the said CBCI (Annex C) to petitioner and, furthermore, it did thereby irrevocably authorize the said
issuer (respondent herein) to transfer the said bond/certificate on the books of its fiscal agent. x x x
9. Petitioner presented the CBCI (Annex C), together with the two (2) aforementioned Detached
Assignments (Annexes B and D), to the Securities Servicing Department of the respondent, and

requested the latter to effect the transfer of the CBCI on its books and to issue a new certificate in the
name of petitioner as absolute owner thereof;
10. Respondent failed and refused to register the transfer as requested, and continues to do so
notwithstanding petitioners valid and just title over the same and despite repeated demands in
writing, the latest of which is hereto attached as Annex E and made an integral part hereof;
11. The express provisions governing the transfer of the CBCI were substantially complied with in
petitioners request for registration, to wit:
No transfer thereof shall be valid unless made at said office (where the Certificate has been
registered) by the registered owner hereof, in person or by his attorney duly authorized in writing, and
similarly noted hereon, and upon payment of a nominal transfer fee which may be required, a new
Certificate shall be issued to the transferee of the registered holder thereof.
and, without a doubt, the Detached Assignments presented to respondent were sufficient
authorizations in writing executed by the registered owner, Filriters, and its transferee, PhilFinance, as
required by the above-quoted provision;
12. Upon such compliance with the aforesaid requirements, the ministerial duties of registering a
transfer of ownership over the CBCI and issuing a new certificate to the transferee devolves upon the
respondent;
Upon these assertions, TRB prayed for the registration by the Central Bank of the subject CBCI in its
name.
On December 4, 1984, the Regional Trial Court trying the case took cognizance of the defendant
Central Bank of the Philippines Motion for Admission of Amended Answer with Counter Claim for
Interpleader,6 thereby calling to fore the respondent Filriters Guaranty Assurance Corporation
(Filriters), the registered owner of the subject CBCI as respondent.
For its part, Filriters interjected as Special Defenses the following:
11. Respondent is the registered owner of CBCI No. 891;
12. The CBCI constitutes part of the reserve investment against liabilities required of respondent as an
insurance company under the Insurance Code;
13. Without any consideration or benefit whatsoever to Filriters in violation of law and the trust fund
doctrine and to the prejudice of policyholders and to all who have present or future claim against
policies issued by Filriters, Alfredo Banaria, then Senior Vice-President-Treasury of Filriters, without any
board resolution, knowledge or consent of the board of directors of Filriters and without any clearance
or authorization from the Insurance Commissioner, executed a detached assignment purportedly
assigning CBCI No. 891 to Philfinance;
xxx
14. Subsequently, Alberto Fabella, Senior Vice-President-Comptroller and Pilar Jacobe, Vice-PresidentTreasury of Filriters (both of whom were holding the same positions in Philfinance), without any
consideration or benefit redounding to Filriters and to the grave prejudice of Filriters, its policy holders
and all who have present or future claims against its policies, executed similar detached assignment
forms transferring the CBCI to plaintiff; x x x
15. The detached assignment is patently void and inoperative because the assignment is without the
knowledge and consent of directors of Filriters, and not duly authorized in writing by the Board, as
required by Article V, Section 3 of CB Circular No. 769;
16. The assignment of the CBCI to Philfinance is a personal act of Alfredo Banaria and not the
corporate act of Filriters and as such null and void;
a) The assignment was executed without consideration and for that reason, the assignment is void
from the beginning (Article 1409, Civil Code);
b) The assignment was executed without any knowledge and consent of the board of directors of
Filriters;

c) The CBCI constitutes reserve investment of Filriters against liabilities, which is a requirement under
the Insurance Code for its existence as an insurance company and the pursuit of its business
operations. The assignment of the CBCI is illegal act, in the sense of malum in se or malum prohibitum,
for anyone to make, either as corporate or personal act;
d) The transfer or diminution of reserve investments of Filriters is expressly prohibited by law, is
immoral and against public policy;
e) The assignment of the CBCI has resulted in the capital impairment and in the solvency deficiency of
Filriters (and has in fact helped in placing Filriters under conservatorship), an inevitable result known to
the officer who executed the detached assignment.
17. Plaintiff had acted in bad faith and with knowledge of the illegality and invalidity of the assignment;
a) The CBCI No. 891 is not a negotiable instrument and as a certificate of indebtedness is not payable
to bearer but is registered in the name of Filriters;
b) The provision on transfer of the CBCIs, provides that the Central Bank shall treat the registered
owner as the absolute owner and that the value of the registered certificates shall be payable only to
the registered owner; a sufficient notice to plaintiff that the assignments do not give them the
registered owners right as absolute owner of the CBCIs;
c) CB Circular 769, Series of 1980 (Rules and Regulations Governing CBCIs) provides that registered
certificates are payable only to the registered owner (Article II, Section 1).
18. Plaintiff knew full well that the assignment by Philfinance of CBCI No. 891 by Filriters is not a
regular transaction made in the usual or ordinary course of business;
a) The CBCI constitutes part of the reserve investments of Filriters against liabilities required by the
Insurance Code and its assignment or transfer is expressly prohibited by law. There was no attempt to
get any clearance or authorization from the Insurance Commissioner;
b) The assignment by Filriters of the CBCI is clearly not a transaction in the usual or regular course of
its business;
c) The CBCI involved substantial amount and its assignment clearly constitutes disposition of all or
substantially all of the assets of Filriters, which requires the affirmative action of the stockholders
(Section 40, Corporation [sic] Code).7
In its Decision8 dated April 29, 1988, the Regional Trial Court of Manila, Branch XXXII found the
assignment of CBCI No. D891 in favor of Philfinance, and the subsequent assignment of the same CBCI
by Philfinance in favor of Traders Royal Bank null and void and of no force and effect. The dispositive
portion of the decision reads:
ACCORDINGLY, judgment is hereby rendered in favor of the respondent Filriters Guaranty Assurance
Corporation and against the plaintiff Traders Royal Bank:
(a) Declaring the assignment of CBCI No. 891 in favor of PhilFinance, and the subsequent assignment
of CBCI by PhilFinance in favor of the plaintiff Traders Royal Bank as null and void and of no force and
effect;
(b) Ordering the respondent Central Bank of the Philippines to disregard the said assignment and to
pay the value of the proceeds of the CBCI No. D891 to the Filriters Guaranty Assurance Corporation;
(c) Ordering the plaintiff Traders Royal Bank to pay respondent Filriters Guaranty Assurance Corp. the
sum of P10,000 as attorneys fees; and
(d) To pay the costs.
SO ORDERED.9
The petitioner assailed the Decision of the trial court in the Court of Appeals,10 but their appeal
likewise failed. The findings of fact of the said court are hereby reproduced:
The records reveal that defendant Filriters is the registered owner of CBCI No. D891. Under a deed of
assignment dated November 27, 1971, Filriters transferred CBCI No. D891 to Philippine Underwriters

Finance Corporation (Philfinance). Subsequently, Philfinance transferred CBCI No. D891, which was still
registered in the name of Filriters, to appellant Traders Royal Bank (TRB). The transfer was made under
a repurchase agreement dated February 4, 1981, granting Philfinance the right to repurchase the
instrument on or before April 27, 1981. When Philfinance failed to buy back the note on maturity date,
it executed a deed of assignment, dated April 27, 1981, conveying to appellant TRB all its rights and
title to CBCI No. D891.
Armed with the deed of assignment, TRB then sought the transfer and registration of CBCI No. D891 in
its name before the Security and Servicing Department of the Central Bank (CB). Central Bank,
however, refused to effect the transfer and registration in view of an adverse claim filed by defendant
Filriters.
Left with no other recourse, TRB filed a special civil action for mandamus against the Central Bank in
the Regional Trial Court of Manila. The suit, however, was subsequently treated by the lower court as a
case of interpleader when CB prayed in its amended answer that Filriters be impleaded as a
respondent and the court adjudge which of them is entitled to the ownership of CBCI No. D891. Failing
to get a favorable judgment, TRB now comes to this Court on appeal.11
In the appellate court, petitioner argued that the subject CBCI was a negotiable instrument, and having
acquired the said certificate from Philfinance as a holder in due course, its possession of the same is
thus free from any defect of title of prior parties and from any defense available to prior parties among
themselves, and it may thus, enforce payment of the instrument for the full amount thereof against all
parties liable thereon.12
In ignoring said arguments, the appellate court said that the CBCI is not a negotiable instrument, since
the instrument clearly stated that it was payable to Filriters, the registered owner, whose name was
inscribed thereon, and that the certificate lacked the words of negotiability which serve as an
expression of consent that the instrument may be transferred by negotiation.
Obviously, the assignment of the certificate from Filriters to Philfinance was fictitious, having been
made without consideration, and did not conform to Central Bank Circular No. 769, series of 1980,
better known as the Rules and Regulations Governing Central Bank Certificates of Indebtedness,
which provided that any assignment of registered certificates shall not be valid unless made x x x by
the registered owner thereof in person or by his representative duly authorized in writing.
Petitioners claimed interest has no basis, since it was derived from Philfinance, whose interest was
inexistent, having acquired the certificate through simulation. What happened was Philfinance merely
borrowed CBCI No. D891 from Filriters, a sister corporation, to guarantee its financing operations.
Said the Court:
In the case at bar, Alfredo O. Banaria, who signed the deed of assignment purportedly for and on
behalf of Filriters, did not have the necessary written authorization from the Board of Directors of
Filriters to act for the latter. For lack of such authority, the assignment did not therefore bind Filriters
and violated at the same time Central Bank Circular No. 769 which has the force and effect of a law,
resulting in the nullity of the transfer (People v. Que Po Lay, 94 Phil. 640; 3M Philippines, Inc. vs.
Commissioner of Internal Revenue, 165 SCRA 778).
In sum, Philfinance acquired no title or rights under CBCI No. D891 which it could assign or transfer to
Traders Royal Bank and which the latter can register with the Central Bank.
WHEREFORE, the judgment appealed from is AFFIRMED, with costs against plaintiff-appellant.
SO ORDERED.13
Petitioners present position rests solely on the argument that Philfinance owns 90% of Filriters equity
and the two corporations have identical corporate officers, thus demanding the application of the
doctrine of piercing the veil of corporate fiction, as to give validity to the transfer of the CBCI from the
registered owner to petitioner TRB.14 This renders the payment by TRB to Philfinance for CBCI, as
actual payment to Filriters. Thus, there is no merit to the lower courts ruling that the transfer of the
CBCI from Filriters to Philfinance was null and void for lack of consideration.

Admittedly, the subject CBCI is not a negotiable instrument in the absence of words of negotiability
within the meaning of the negotiable instruments law (Act 2031). The pertinent portions of the subject
CBCI read:
xxx
The Central Bank of the Philippines (the Bank) for value received, hereby promises to pay to bearer, or
if this Certificate of indebtedness be registered, to FILRITERS GUARANTY ASSURANCE CORPORATION,
the Registered owner hereof, the principal sum of FIVE HUNDRED THOUSAND PESOS.
xxx
Properly understood, a certificate of indebtedness pertains to certificates for the creation and
maintenance of a permanent improvement revolving fund, and is similar to a bond, (82 Minn. 202).
Being equivalent to a bond, it is properly understood as an acknowledgment of an obligation to pay a
fixed sum of money. It is usually used for the purpose of long term loans.
The appellate court ruled that the subject CBCI is not a negotiable instrument, stating that:
As worded, the instrument provides a promise to pay Filriters Guaranty Assurance Corporation, the
registered owner hereof. Very clearly, the instrument is payable only to Filriters, the registered owner,
whose name is inscribed thereon. It lacks the words of negotiability which should have served as an
expression of consent that the instrument may be transferred by negotiation.15
A reading of the subject CBCI indicates that the same is payable to FILRITERS GUARANTY ASSURANCE
CORPORATION, and to no one else, thus, discounting the petitioners submission that the same is a
negotiable instrument, and that it is a holder in due course of the certificate.
The language of negotiability which characterize a negotiable paper as a credit instrument is its
freedom to circulate as a substitute for money. Hence, freedom of negotiability is the touchstone
relating to the protection of holders in due course, and the freedom of negotiability is the foundation
for the protection which the law throws around a holder in due course (11 Am. Jur. 2d, 32). This
freedom in negotiability is totally absent in a certificate of indebtedness as it merely acknowledges to
pay a sum of money to a specified person or entity for a period of time.
As held in Caltex (Philippines), Inc. vs. Court of Appeals:16
The accepted rule is that the negotiability or non-negotiability of an instrument is determined from
the writing, that is, from the face of the instrument itself. In the construction of a bill or note, the
intention of the parties is to control, if it can be legally ascertained. While the writing may be read in
the light of surrounding circumstances in order to more perfectly understand the intent and meaning of
the parties, yet as they have constituted the writing to be the only outward and visible expression of
their meaning, no other words are to be added to it or substituted in its stead. The duty of the court in
such case is to ascertain, not what the parties may have secretly intended as contradistinguished from
what their words express, but what is the meaning of the words they have used. What the parties
meant must be determined by what they said.
Thus, the transfer of the instrument from Philfinance to TRB was merely an assignment, and is not
governed by the Negotiable Instruments Law. The pertinent question then is, was the transfer of the
CBCI from Filriters to Philfinance and subsequently from Philfinance to TRB, in accord with existing law,
so as to entitle TRB to have the CBCI registered in its name with the Central Bank?
The following are the appellate courts pronouncements on the matter:
Clearly shown in the record is the fact that Philfinances title over CBCI No. D891 is defective since it
acquired the instrument from Filriters fictitiously. Although the deed of assignment stated that the
transfer was for value received, there was really no consideration involved. What happened was
Philfinance merely borrowed CBCI No. D891 from Filriters, a sister corporation. Thus, for lack of any
consideration, the assignment made is a complete nullity. What is more, We find that the transfer
made by Filriters to Philfinance did not conform to Central Bank Circular No. 769, series of 1980,
otherwise known as the Rules and Regulations Governing Central Bank Certificates of Indebtedness,
under which the note was issued. Published in the Official Gazette on November 19, 1980, Section 3
thereof provides that any assignment of registered certificates shall not be valid unless made x x x by
the registered owner thereof in person or by his representative duly authorized in writing.

In the case at bar, Alfredo O. Banaria, who signed the deed of assignment purportedly for and on
behalf of Filriters, did not have the necessary written authorization from the Board of Directors of
Filriters to act for the latter. For lack of such authority, the assignment did not therefore bind Filriters
and violated at the same time Central Bank Circular No. 769 which has the force and effect of a law,
resulting in the nullity of the transfer (People vs. Que Po Lay, 94 Phil. 640; 3M Philippines, Inc. vs.
Commissioner of Internal Revenue, 165 SCRA 778).
In sum, Philfinance acquired no title or rights under CBCI No. D891 which it could assign or transfer to
Traders Royal Bank and which the latter can register with the Central Bank.
Petitioner now argues that the transfer of the subject CBCI to TRB must be upheld, as the respondent
Filriters and Philfinance, though separate corporate entities on paper, have used their corporate fiction
to defraud TRB into purchasing the subject CBCI, which purchase now is refused registration by the
Central Bank.
Says the petitioner:
Since Philfinance owns about 90% of Filriters and the two companies have the same corporate
officers, if the principle of piercing the veil of corporate entity were to be applied in this case, then
TRBs payment to Philfinance for the CBCI purchased by it could just as well be considered a payment
to Filriters, the registered owner of the CBCI as to bar the latter from claiming, as it has, that it never
received any payment for that CBCI sold and that said CBCI was sold without its authority.
xxx
We respectfully submit that, considering that the Court of Appeals has held that the CBCI was merely
borrowed by Philfinance from Filriters, a sister corporation, to guarantee its (Philfinances) financing
operations, if it were to be consistent therewith, on the issue raised by TRB that there was a piercing of
veil of corporate entity, the Court of Appeals should have ruled that such veil of corporate entity was,
in fact, pierced, and the payment by TRB to Philfinance should be construed as payment to Filriters.17
We disagree with the Petitioner.
Petitioner cannot put up the excuse of piercing the veil of corporate entity, as this is merely an
equitable remedy, and may be awarded only in cases when the corporate fiction is used to defeat
public convenience, justify wrong, protect fraud or defend crime or where a corporation is a mere alter
ego or business conduit of a person.18
Piercing the veil of corporate entity requires the court to see through the protective shroud which
exempts its stockholders from liabilities that ordinarily, they could be subject to, or distinguishes one
corporation from a seemingly separate one, were it not for the existing corporate fiction. But to do this,
the court must be sure that the corporate fiction was misused, to such an extent that injustice, fraud,
or crime was committed upon another, disregarding, thus, his, her, or its rights. It is the protection of
the interests of innocent third persons dealing with the corporate entity which the law aims to protect
by this doctrine.
The corporate separateness between Filriters and Philfinance remains, despite the petitioners
insistence on the contrary. For one, other than the allegation that Filriters is 90% owned by Philfinance,
and the identity of one shall be maintained as to the other, there is nothing else which could lead the
court under the circumstances to disregard their corporate personalities.
Though it is true that when valid reasons exist, the legal fiction that a corporation is an entity with a
juridical personality separate from its stockholders and from other corporations may be disregarded,19
in the absence of such grounds, the general rule must be upheld. The fact that Philfinance owns
majority shares in Filriters is not by itself a ground to disregard the independent corporate status of
Filriters. In Liddel & Co., Inc. vs. Collector of Internal Revenue,20 the mere ownership by a single
stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not of
itself a sufficient reason for disregarding the fiction of separate corporate personalities.
In the case at bar, there is sufficient showing that the petitioner was not defrauded at all when it
acquired the subject certificate of indebtedness from Philfinance.
On its face, the subject certificates states that it is registered in the name of Filriters. This should have
put the petitioner on notice, and prompted it to inquire from Filriters as to Philfinances title over the

same or its authority to assign the certificate. As it is, there is no showing to the effect that petitioner
had any dealings whatsoever with Filriters, nor did it make inquiries as to the ownership of the
certificate.
The terms of the CBCI No. D891 contain a provision on its TRANSFER. Thus:
TRANSFER: This Certificate shall pass by delivery unless it is registered in the owners name at any
office of the Bank or any agency duly authorized by the Bank, and such registration is noted hereon.
After such registration no transfer thereof shall be valid unless made at said office (where the
Certificate has been regis-tered) by the registered owner hereof, in person, or by his attorney, duly
authorized in writing and similarly noted hereon and upon payment of a nominal transfer fee which
may be required, a new Certificate shall be issued to the transferee of the registered owner thereof.
The bank or any agency duly authorized by the Bank may deem and treat the bearer of this Certificate,
or if this Certificate is registered as herein authorized, the person in whose name the same is
registered as the absolute owner of this Certificate, for the purpose of receiving payment hereof, or on
account hereof, and for all other purpose whether or not this Certificate shall be overdue.
This is notice to petitioner to secure from Filriters a written authorization for the transfer or to require
Philfinance to submit such an authorization from Filriters.
Petitioner knew that Philfinance is not the registered owner of CBCI No. D891. The fact that a nonowner was disposing of the registered CBCI owned by another entity was a good reason for petitioner
to verify or inquire as to the title of Philfinance to dispose of the CBCI.
Moreover, CBCI No. D891 is governed by CB Circular No. 769, series of 1980,21 known as the Rules
and Regulations Governing Central Bank Certificates of Indebtedness, Section 3, Article V of which
provides that:
SECTION 3. Assignment of Registered Certificates.Assignment of registered certificates shall not be
valid unless made at the office where the same have been issued and registered or at the Securities
Servicing Department, Central Bank of the Philippines, and by the registered owner thereof, in person
or by his representative, duly authorized in writing. For this purpose, the transferee may be designated
as the representative of the registered owner.
Petitioner, being a commercial bank, cannot feign ignorance of Central Bank Circular 769, and its
requirements. An entity which deals with corporate agents within circumstances showing that the
agents are acting in excess of corporate authority, may not hold the corporation liable.22 This is only
fair, as everyone must, in the exercise of his rights and in the performance of his duties, act with
justice, give everyone his due, and observe honesty and good faith.23
The transfer made by Filriters to Philfinance did not conform to the said Central Bank Circular, which
for all intents, is considered part of the law. As found by the courts a quo, Alfredo O. Banaria, who had
signed the deed of assignment from Filriters to Philfinance, purportedly for and in favor of Filriters, did
not have the necessary written authorization from the Board of Directors of Filriters to act for the latter.
As it is, the sale from Filriters to Philfinance was fictitious, and therefore void an inexistent, as there
was no consideration for the same. This is fatal to the petitioners cause, for then, Philfinance had no
title over the subject certificate to convey to Traders Royal Bank. Nemo potest nisi quod de jure potest
no man can do anything except what he can do lawfully.
Concededly, the subject CBCI was acquired by Filriters to form part of its legal and capital reserves,
which are required by law24 to be maintained at a mandated level. This was pointed out by Elias
Garcia, Manager-in-Charge of respondent Filriters, in his testimony given before the court on May 30,
1986.
Q
Do you know this Central Bank Certificate of Indebtedness, in short, CBCI No. D891 in the face value of
P500,000.00 subject of this case?
A
Yes, sir.
Q

Why do you know this?

A
Well, this was the CBCI of the company sought to be examined by the Insurance Commission sometime
in early 1981 and this CBCI No. 891 was among the CBCIs that were found to be missing.
Q
Let me take you back further before 1981. Did you have the knowledge of this CBCI No. 891 before
1981?
A
Yes, sir. This CBCI is an investment of Filriters required by the Insurance Commission as legal reserve of
the company.
Q
Legal reserve for the purpose of what?
A
Well, you see, the Insurance companies are required to put up legal reserves under Section 213 of the
Insurance Code equivalent to 40 percent of the premiums receipt and further, the Insurance
Commission requires this reserve to be invested preferably in government securities or government
bonds. This is how this CBCI came to be purchased by the company.
It cannot, therefore, be taken out of the said fund, without violating the requirements of the law. Thus,
the unauthorized use or distribution of the same by a corporate officer of Filriters cannot bind the said
corporation, not without the approval of its Board of Directors, and the maintenance of the required
reserve fund.
Consequently, the title of Filriters over the subject certificate of indebtedness must be upheld over the
claimed interest of Traders Royal Bank.
ACCORDINGLY, the petition is DISMISSED and the decision appealed from dated January 29, 1990 is
hereby AFFIRMED.
SO ORDERED.

New Pacific Timber & Supply Co., Inc. vs. Seneris

No. L-41764. December 19, 1980.*
NEW PACIFIC TIMBER & SUPPLY COMPANY, INC., petitioner, vs. HON. ALBERTO V. SENERIS, RICARDO A.
TONG and EX-OFFICIO SHERIFF HAKIM S. ABDULWAHID, respondents.
Mercantile Law; Negotiable Instruments; Checks; Cashiers check deemed as cash.It is to be
emphasized in this connection that the check deposited by the petitioner in the amount of P50,000.00
is not an ordinary check but a Cashiers Check of the Equitable Banking Corporation, a bank of good
standing and reputation. As testified to by the Ex-Oficio Sheriff with whom it has been deposited, it is a
certified crossed checked. It is a well-known and accepted practice in the business sector that a
Cashiers Check is deemed as cash.
Same; Same; Same; Same; Certification of check by drawee bank equivalent to acceptance;
Certification, meaning and object of; Certification of check an exception to rule under Sec. 63 of the
Central Bank Act.Moreover, since the said check had been certified by the drawee bank, by the
certification, the funds, represented by the check are transferred from the credit of the maker to that
of the payee or holder, and for all intents and purposes, the latter becomes the depositor of the
drawee bank, with rights and duties of one in such situation. Where a check is certified by the bank on
which it is drawn, the certification is equivalent to acceptance. Said certification implies that the
check is drawn upon sufficient funds in the hands of the drawee, that they have been set apart for its
satisfaction, and that they shall be so applied whenever the check is presented for payment. It is an

understanding that the check is good then, and shall continue good, and this agreement is as binding
on the bank as it notes in circulation, a certificate of deposit payable to the order of the depositor, or
any other obligation it can assume. The object of certifying a check, as regards both parties, is to
enable the holder to use it as money. When the holder procures the check to be certified, the check
operates as an assignment of a part of the fluids to the creditors. Hence, the exception to the rule
enunciated under Section 63 of the Central Bank Act to the effect that a check which has been
cleared and credited to the account of the creditor shall be equivalent to a delivery to the creditor in
cash in an amount equal to the amount credited to his account shall apply in this case.
Remedial Law; Judgments; Writ of Execution; Issuance of certificate of satisfaction of judgment proper
even if payment of judgment obligation was in cash and in check; Auction Sale Valid; Refusal of
respondent judge to issue the certificate constitutes grave abuse of discretion.Considering that the
whole amount deposited by the petitioner consisting of Cashiers Check of P50,000.00 and P13,130.00
in cash covers the judgment obligation of P63,000.00 as mentioned in the writ of execution, then, We
see no valid reason for the private respondent to have refused acceptance of the payment of the
obligation in his favor. The auction sale, therefore, was uncalled for. Furthermore, it appears that on
January 17, 1975, the Cashiers Check was even withdrawn by the petitioner and replaced with cash in
the corresponding amount of P50,000.00 on January 27, 1975 pursuant to an agreement entered into
by the parties at the instance of the respondent judge. However, the private respondent still refused to
receive the same. Obviously, the private respondent is more interested in the levied properties than in
the mere satisfaction of the judgment obligation. Thus, petitioners motion for the issuance of a
certificate of satisfaction of judgment is clearly meritorious and the respondent Judge gravely abused
his discretion in not granting the same under the circumstances.
Same; Same; Same; Remedies; Special civil action is a proper and adequate remedy in a case where a
writ of execution of the decision had been issued.It is also contended by the private respondent that
appeal and not a special civil action for certiorari is the proper remedy in this case, and that since the
period to appeal from the decision of the respondent judge has already expired, then, the present
petition has been filed out of time. The contention is untenable. The decision of the respondent judge
in Civil Case No. 250 (166) has long been become final and executory and so, the same is not being
questioned herein. The subject of the petition at bar as having been issued in grave abuse of discretion
is the order dated August 28, 1975 of the respondent Judge which was merely issued in execution of
the said decision. Thus, even granting that appeal is open to the petitioner, the same is not an
adequate and speedy remedy for the respondent judge had already issued a writ of execution.
PETITION for certiorari with preliminary injunction from the order of the Court of First Instance of
Zamboanga, Branch II.

The facts are stated in the opinion of the court.

CONCEPCION JR., J.:

A petition for certiorari with preliminary injunction to annul and/or modify the order of the Court of First
Instance of Zamboanga City (Branch II) dated August 28, 1976 denying petitioners Ex-Parte Motion for
Issuance of Certificate Of Satisfaction Of Judgment.
Herein petitioner is the defendant in a complaint for collection of a sum of money filed by the private
respondent.1 On July 19, 1974, a compromise judgment was rendered by the respondent Judge in
accordance with an amicable settlement entered into by the parties the terms and conditions of which,
are as follows:
(1) That defendant will pay to the plaintiff the amount of Fifty Four Thousand Five Hundred Pesos
(P54,500.00) at 6% interest per annum to be reckoned from August 25, 1972;
(2) That defendant will pay to the plaintiff the amount of Six Thousand Pesos (P6,000.00) as
attorneys fees for which P5,000.00 had been acknowledged received by the plaintiff under
Consolidated Bank and Trust Corporation Check No. 16-135022 amounting to P5,000.00 leaving a
balance of One Thousand Pesos (P1,000.00);

(3) That the entire amount of P54,500.00 plus interest, plus the balance of P1,000.00 for attorneys
fees will be paid by defendant to the plaintiff within five months from today, July 19, 1974; and
(4) Failure on the part of the defendant to comply with any of the above-conditions, a writ of
execution may be issued by this Court for the satisfaction of the obligation.2
For failure of the petitioner to comply with his judgment obligation, the respondent Judge, upon motion
of the private respondent, issued an order for the issuance of a writ of execution on December 21,
1974. Accordingly, writ of execution was issued for the amount of P63,130.00 pursuant to which, the
ExOfficio Sheriff levied upon the following personal properties of the petitioner, to wit:
(1)
Unit American Lathe 24
(1)
Unit American Lathe 18 Cracker Wheeler
(1)
Unit Rockford Shaper 24
and set the auction sale thereof on January 15, 1975. However, prior to January 15, 1975, petitioner
deposited with the Clerk of Court, Court of First Instance, Zamboanga City, in his capacity as Ex-Officio
Sheriff of Zamboanga City, the sum of P63,130.00 for the payment of the judgment obligation,
consisting of the following:
1. P50,000.00 in Cashiers Check No. S-314361 dated January 3, 1975 of the Equitable Banking
Corporation; and
2. P13,130.00 in cash.3
In a letter dated January 14, 1975, to the Ex-Officio Sheriff,4 private respondent through counsel,
refused to accept the check as well as the cash deposit. In the same letter, private respondent
requested the scheduled auction sale on January 15, 1975 to proceed if the petitioner cannot produce
the cash. However, the scheduled auction sale at 10:00 a.m. on January 15, 1975 was postponed to
3:00 oclock p.m. of the same day due to further attempts to settle the case. Again, the scheduled
auction sale that afternoon did not push through because of a last ditch attempt to convince the
private respondent to accept the check. The auction sale was then postponed on the following day,
January 16, 1975 at 10:00 oclock a.m.5 At about 9:15 a.m., on January 16, 1975, a certain Mr. Taedo
representing the petitioner appeared in the office of the Ex-Officio Sheriff and the latter reminded Mr.
Taedo that the auction sale would proceed at 10:00 oclock. At 10:00 a.m., Mr. Taedo and Mr.
Librado, both representing the petitioner requested the Ex-Officio Sheriff to give them fifteen minutes
within which to contract their lawyer which request was granted. After Mr. Taedo and Mr. Librado
failed to return, counsel for private respondent insisted that the sale must proceed and the ExOfficio
Sheriff proceeded with the auction sale.6 In the course of the proceedings, Deputy Sheriff Castro sold
the levied properties item by item to the private respondent as the highest bidder in the amount of
P50,000.00. As a result thereof, the Ex-Officio Sheriff declared a deficiency of P13,130.00.7 Thereafter,
on January 16, 1975, the Ex-Officio Sheriff issued a Sheriffs Certificate of Sale in favor of the private
respondent, Ricardo Tong, married to Pascuala Tong for the total amount of P50,000.00 only.8
Subsequently, on January 17, 1975, petitioner filed an ex-parte motion for issuance of certificate of
satisfaction of judgment. This motion was denied by the respondent Judge in his order dated August
28, 1975. In view thereof, petitioner now questions said order by way of the present petition alleging in
the main that said respondent Judge capriciously and whimsically abused his discretion in not granting
the motion for issuance of certificate of satisfaction of judgment for the following reasons: (1) that
there was already a full satisfaction of the judgment before the auction sale was conducted with the
deposit made to the Ex-Officio Sheriff in the amount of P63,000.00 consisting of P50,000.00 in
Cashiers Check and P13,130.00 in cash; and (2) that the auction sale was invalid for lack of proper
notice to the petitioner and its counsel when the Ex-Officio Sheriff postponed the sale from June 15,
1975 to January 16, 1976 contrary to Section 24, Rule 39 of the Rules of Court. On November 10, 1975,
the Court issued a temporary restraining order enjoining the respondent Ex-Officio Sheriff from
delivering the personal properties subject of the petition to Ricardo A. Tong in view of the issuance of
the Sheriff Certificate of Sale.

We find the petition to be impressed with merit.

The main issue to be resolved in this instance is as to whether or not the private respondent can
validly refuse acceptance of the payment of the judgment obligation made by the petitioner consisting
of P50,000.00 in Cashiers Check and P13,130.00 in cash which it deposited, with the Ex-Officio Sheriff
before the date of the scheduled auction sale. In upholding private respondents claim that he has the
right to refuse payment by means of a check, the respondent Judge cited the following:
Section 63 of the Central Bank Act:
Sec. 63. Legal Character.Checks representing deposit money do not have legal tender power and
their acceptance in payment of debts, both public and private, is at the option of the creditor. Provided,
however, that a check which has been cleared and credited to the account of the creditor shall be
equivalent to a delivery to the creditor in cash in an amount equal to the amount credited to his
account.
Article 1249 of the New Civil Code:
Art. 1249.The payment of debts in money shall be made in the currency stipulated, and if it is not
possible to deliver such currency, then in the currency which is legal tender in the Philippines.
The delivery of promissory notes payable to order, or bills of exchange or other mercantile documents
shall produce the effect of payment only when they have been cashed, or when through the fault of
the creditor they have been impaired.
In the meantime, the action derived from the original obligation shall be held in abeyance.
Likewise, the respondent Judge sustained the contention of the private respondent that he has the
right to refuse payment of the amount of P13,130.00 in cash because the said amount is less than the
judgment obligation, citing the following Article of the New Civil Code:
Art. 1248. Unless there is an express stipulation to that effect, the creditor cannot be compelled
partially to receive the presentations in which the obligation consists. Neither may the debtor be
required to make partial payment.
However, when the debt is in part liquidated and in part unliquidated, the creditor may demand and
the debtor may effect the payment of the former without waiting for the liquidation of the latter.
It is to be emphasized in this connection that the check deposited by the petitioner in the amount of
P50,000.00 is not an ordinary check but a Cashiers Check of the Equitable Banking Corporation, a
bank of good standing and reputation. As testified to by the Ex-Officio Sheriff with whom it has been
deposited, it is a certified crossed check.9 It is a well-known and accepted practice in the business
sector that a Cashiers Check is deemed as cash. Moreover, since the said check had been certified by
the drawee bank, by the certification, the funds represented by the check are transferred from the
credit of the maker to that of the payee or holder, and for all intents and purposes, the latter becomes
the depositor of the drawee bank, with rights and duties of one in such situation.10 Where a check is
certified by the bank on which it is drawn, the certification is equivalent to acceptance.11 Said
certification implies that the check is drawn upon sufficient funds in the hands of the drawee, that
they have been set apart for its satisfaction, and that they shall be so applied whenever the check is
presented for payment. It is an understanding that the check is good then, and shall continue good,
and this agreement is as binding on the bank as its notes in circulation, a certificate of deposit payable
to the order of the depositor, or any other obligation it can assume. The object of certifying a check, as
regards both parties, is to enable the holder to use it as money.12 When the holder procures the
check to be certified, the check operates as an assignment of a part of the funds to the creditors.13
Hence, the exception to the rule enunciated under Section 63 of the Central Bank Act to the effect
that a check which has been cleared and credited to the account of the creditor shall be equivalent to
a delivery to the creditor in cash in an amount equal to the amount credited to his account shall apply
in this case. Considering that the whole amount deposited by the petitioner consisting of
_______________

10 Gregorio Araneta, Inc. vs. Paz Tuazon de Paterno and Jose Vidal, L-2886, August 22, 1952, 49 O.G.
No. 1, p. 59.

11 Section 187. Certification of check; effect of.Where a check is certified by the bank on which it is
drawn, the certification is equivalent to acceptance. (Negotiable Instruments Law)
12 PNB vs. Nat. City Bank of New York, 63 Phil. 711, 718-719.
13 PNB vs. Nat. City Bank of New York, supra, 711-717; Sec. 189. When check operates as an
assignment.A check of itself does not operate as an assignment of any part of the funds to the credit
of the drawer with the bank, and the bank is not liable to the holder unless and until it accepts or
certifies it. (Negotiable Instruments Law) [Italics supplied]
Cashiers Check of P50,000.00 and P13,130.00 in cash covers the judgment obligation of P63,000.00
as mentioned in the writ of execution, then. We see no valid reason for the private respondent to have
refused acceptance of the payment of the obligation in his favor. The auction sale, therefore, was
uncalled for. Furthermore, it appears that on January 17, 1975, the Cashiers Check was even
withdrawn by the petitioner and replaced with cash in the corresponding amount of P50,000.00 on
January 27, 1975 pursuant to an agreement entered into by the parties at the instance of the
respondent Judge. However, the private respondent still refused to receive the same. Obviously, the
private respondent is more interested in the levied properties than in the mere satisfaction of the
judgment obligation. Thus, petitioners motion for the issuance of a certificate of satisfaction of
judgment is clearly meritorious and the respondent Judge gravely abused his discretion in not granting
the same under the circumstances.
In view of the conclusion reached in this instance, We find no more need to discuss the ground relied in
the petition.
It is also contended by the private respondent that Appeal and not a special civil action for certiorari is
the proper remedy in this case, and that since the period to appeal from the decision of the respondent
Judge has already expired, then, the present petition has been filed out of time. The contention is
untenable. The decision of the respondent Judge in Civil Case No. 250 (166) has long become final and
executory and so, the same is not being questioned herein. The subject of the petition at bar as having
been issued in grave abuse of discretion is the order dated August 28, 1975 of the respondent Judge
which was merely issued in execution of the said decision. Thus, even granting that appeal is open to
the petitioner, the same is not an adequate and speedy remedy for the respondent Judge had already
issued a writ of execution.14
WHEREFORE, in view of all the foregoing, judgment is hereby rendered:
1. Declaring as null and void the order of the respondent Judge dated August 28, 1975;
2. Declaring as null and void the auction sale conducted on January 16, 1975 and the certificate of sale
issued pursuant thereto;
3. Ordering the private respondent to accept the sum of P63,130.00 under deposit as payment of the
judgment obligation in his favor;
4. Ordering the respondent Judge and respondent Ex-Officio Sheriff to release the levied properties to
the herein petitioner.
The temporary restraining order issued is hereby made permanent.
Costs against the private respondent.
SO ORDERED.

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.
Civil Law; Obligation; Fact 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.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.
Same; Same; Same; Tender of payment cannot be presumed by a mere inference from surrounding
circumstances; Tender of payment presupposes not only that the obligor is able, ready and willing but
more so in the act of performing his obligation.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.
Same; Same; Same; Same; Respondent Court erred to have concluded from the sheer proof of
sufficient available funds on the part of private respondent to meet more than the total obligation
within the grace period.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.
Remedial Law; Evidence; Appeal; When findings of fact of the Court of Appeals are at variance with
those of the trial court, the Court has to review the evidence in order to arrive at the correct findings
based on the record.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, or when the inference of the Court of Appeals
from its findings of fact is manifestly mistaken, the Court has to review the evidence in order to arrive
at the correct findings based on the record.
Commercial Law; Negotiable Instruments Law; A certified personal check is not a legal tender nor the
currency stipulated and therefore can not constitute valid tender of payment.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.
Same; Same; Same; A check whether a managers check or ordinary check is not a 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.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.
Same; Same; Same; The tender of payment by private respondent not being valid for failure to comply
with the requisite payment in legal tender or currency stipulated, subsequent consignation did not
operate to discharge the private respondent from its obligation to the petitioner.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.
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 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 RobesFrancisco 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 extension of the grace period.
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:
xxx

xxx

xxx

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?
xxx

xxx

xxx

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.
xxx

xxx

xxx

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

xxx

xxx

xxx

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.

G.R. No. 141278. March 23, 2004.*

MICHAEL A. OSMEA, petitioner, vs. CITIBANK, N.A., ASSOCIATED BANK and FRANK TAN, respondents.
Commercial Law; Banks and Banking; Negotiable Instruments Law; The Negotiable Instruments Law
was enacted for the purpose of facilitating, not hindering or hampering transactions in commercial
paper.The petitioner cites the ruling of the Court in Associated Bank v. Court of Appeals, 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.
PETITION for review on certiorari of a decision of the Court of Appeals.

The facts are stated in the opinion of the Court.

Castillo, Laman, Tan, Pantaleon & San Jose for petitioner.
Agcaoili and Associates for respondent Citibank, N.A.
Guerrero, Cabalum, Rabuya, Divina & Associates for respondent Associated Bank.
CALLEJO, SR., J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Court, as amended, of the
Decision1 of the Court of Appeals in CA-G.R. CV No. 49529 which affirmed in toto the Decision 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 Complaint4 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.13TSN, 16 April
1993, pp. 17-18, 21-22. 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 Purchased17 and the Continuing Suretyship Agreement18
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. 07571321 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 thereof22 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 osr 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 check30 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.
Commercial Law; Checks; 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.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. This
is especially true in the case of a postdated check.
Same; Same; The issuance by the private respondent of the postdated check was not effective
payment.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.
Civil Law; Damages; Elements to Find the Existence of an Abuse of Right Under Article 19.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.
Same; Same; Good faith is presumed and the burden of proving bad faith is on the party alleging it.
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. 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
respondents 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 respondents credit card.
Same; Same; 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.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.
Same; Same; There must first be a breach of some duty and the imposition of liability for that breach
before damages may be awarded; and the breach of such duty should be the proximate cause of the
injury.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 plaintiffa 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; and the breach of such duty should be the
proximate cause of the injury.
PETITION for review on certiorari of a decision of the Court of Appeals.

The facts are stated in the opinion of the Court.

Lopez Law Office for petitioner.
Pedro D. Diwa Law Office for private respondent.
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 Caf
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 limit (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 for P15,000.00 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 defendants 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
the 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 and also to replace the postdated check with cash within the same period or face criminal
suit for violation of the Bouncing Checks Law (Exh. G/Exh. 13). The plaintiff, in a reply letter dated April
5, 1990 (Exh. H), demanded defendants 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 attorneys 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 courts 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 plaintiffs case. What is more peculiar here is that there have
been admitted communications between plaintiff and defendant prior to the suspension or cancellation
of plaintiffs 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 plaintiffs card
and include him in the caution list. While the Court admires defendants diplomacy in dealing with its
clients, it cannot help but frown upon the backhanded way defendant dealt with plaintiffs case. For
despite Tess Lorenzos 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 plaintiffs witness,
Dolores Quizon, that it was one Tess Lorenzo whom she had talked over the phone regarding plaintiffs
account and plaintiffs 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 plaintiffs obligation;
2. Defendant did not deny nor controvert plaintiffs claim that all his payments were made in checks;
3. Defendants 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 plaintiffs 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 defendants 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 Courts 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 attorneys 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 PLAINTIFFS CREDIT CARD WILL NOT
BE SUSPENDED OR CANCELLED.
II

THE LOWER COURT ERRED IN HOLDING DEFENDANT LIABLE FOR DAMAGES AND ATTORNEYS FEES
ARISING OUT FROM THE DISHONOR OF THE PLAINTIFFS 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 CHARGESBECC 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 Cardholders 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 months 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

x x x.

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 BECCs 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, without prejudice, however, to BECCs right of considering Cardholders

obligation unpaid; cable cost for demanding payment or advising cancellation of membership shall also
be for Cardholders 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 nonpayment 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 respondents 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 establishments.
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 latters billings. However, we find that the private respondent was not able to comply
with this 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 respondents 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 respondents 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
respondents 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 respondents 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
plaintiffa 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 petitioners 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.
This notwithstanding, on November 28, 1989, the day of the suspension of private respondents 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
respondents 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 receive 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 respondents 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 and P20,000.00 as
attorneys 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.

Nos. L-25836-37. January 31, 1981.*

THE PHILIPPINE BANK OF COMMERCE, plaintiff-appellee, vs. JOSE M. ARUEGO, defendant-appellant.
Remedial Law; Civil Procedure; Defaults; Requirements for setting aside an order of default.It has
been held that to entitle a party to relief from a judgment taken against him through his mistake,
inadvertence, surprise or excusable neglect, he must show to the court that he has a meritorious
defense. In other words, in order to set aside the order of default, the defendant must not only show
that his failure to answer was due to fraud, accident, mistake or excusable negligence but also that he
has a meritorious defense.
Same; Same; Pleadings; Failure of defendant to file an answer on the last day for pleading, excusable;
Reason.The failure then of the defendant to file his answer on the last day for pleading is excusable.
The order setting aside the dismissal of the complaint was received at 5:00 oclock in the afternoon. It
was therefore impossible for him to have filed his answer on that same day because the courts then
held office only up to 5:00 oclock in the afternoon. Moreover, the defendant immediately filed his
answer on the following day.
Same; Appeals; New Trial; New trial not to be granted if it will serve no purpose, and defense is
ineffective.It is evident then that the defendants appeal can not prosper. To grant the defendants
prayer will result in a new trial which will serve no purpose and will just waste the time of the courts as
well as of the parties because the defense is nil or ineffective.
Mercantile Law; Negotiable Instruments; Bills of Exchange; A party who signs a bill of exchange as an
agent, but failed to disclose his principal becomes personally liable for the drafts he accepted.An
inspection of the drafts accepted by the defendant shows that nowhere has he disclosed that he was
signing as a representative of the Philippine Education Foundation Company. He merely signed as
follows. JOSE ARUEGO (Acceptor) (SGD) JOSE ARUEGO. For failure to disclose his principal, Aruego is
personally liable for the drafts he accepted.
Same; Same; Same; Accommodation party; Liability of an accommodation party.In lending his name
to be accommodated party, the accommodation party is in effect a surety for the latter. He lends his
name to enable the accommodated party to obtain credit or to raise money. He receives no part of the
consideration for the instrument but assumes liability to the other parties thereto because he wants to
accommodate another.

Same; Same; Same; Liability of an acceptor or drawee is primary; A party, a lawyer, who intends to be
secondarily liable should not have signed as an acceptor or drawee.In the instant case, the
defendant signed as a drawee/acceptor. Under the Negotiable Instruments Law, a drawee is primarily
liable. Thus, if the defendant who is a lawyer, really intended to be secondarily liable only, he should
not have signed as an acceptor/drawee. In doing so, he became primarily and personally liable for the
drafts.
Same; Same; Same; A commercial paper which conforms under the definition of a bill of exchange is a
bill of exchange; Acceptance; Nature of acceptance is important only in the determination of liability of
the parties, hut not to determine whether a commercial paper is a bill of exchange or not.Under the
Negotiable Instruments Law, a bill of exchange is an unconditional order in writing addressed by one
person to another, signed by the person giving it, requiring the person to whom it is addressed to pay
on demand or at a fixed or determinable future time a sum certain in money to order or to bearer. As
long as a commercial paper conforms with the definition of a bill of exchange, that paper is considered
a bill of exchange. The nature of acceptance is important only in the determination of the kind of
liabilities of the parties involved, but not in the determination of whether a commercial paper is a bill of
exchange or not.
APPEAL from the order of the Court of First Instance of Manila, Br. XIII.

The facts are stated in the opinion of the Court.

FERNANDEZ, J.:

The defendant, Jose M. Aruego, appealed to the Court of Appeals from the order of the Court of First
Instance of Manila, Branch XIII, in Civil Case No. 42066 denying his motion to set aside the order
declaring him in default,1 and from the order of said court in the same case denying his motion to set
aside the judgment rendered after he was declared in default.2 These two appeals of the defendant
were docketed as CA-G.R. NO. 27734-R and CA-G.R. NO. 27940-R, respectively.
Upon motion of the defendant on July 25, 1960,3 he was allowed by the Court of Appeals to file one
consolidated record on appeal of CA-G.R. NO. 27734-R and CA-G.R. NO. 27940-R.4
In a resolution promulgated on March 1, 1966, the Court of Appeals, First Division, certified the
consolidated appeal to the Supreme Court on the ground that only questions of law are involved.5
On December 1, 1959, the Philippine Bank of Commerce instituted against Jose M. Aruego Civil Case
No. 42066 for the recovery of the total sum of about P35,000.00 with daily interest thereon from
November 17, 1959 until fully paid and commission equivalent to 3/8% for every thirty (30) days or
fraction thereof plus attorneys fees equivalent to 10% of the total amount due and costs.6 The
complaint filed by the Philippine Bank of Commerce contains twenty-two (22) causes of action referring
to twenty-two (22) transactions entered into by the said Bank and Aruego on different dates covering
the period from August 28, 1950 to March 14, 1951.7 The sum sought to be recovered represents the
cost of the printing of World Current Events, a periodical published by the defendant. To facilitate the
payment of the printing the defendant obtained a credit accommodation from the plaintiff. Thus, for
every printing of the World Current Events, the printer, Encal Press and Photo-Engraving, collected
the cost of printing by drawing a draft against the plaintiff, said draft being sent later to the defendant
for acceptance. As an added security for the payment of the amounts advanced to Encal Press and
Photo-Engraving, the plaintiff bank also required defendant Aruego to execute a trust receipt in favor
of said bank wherein said defendant undertook to hold in trust for plaintiff the periodicals and to sell
the same with the promise to turn over to the plaintiff the proceeds of the sale of said publication to
answer for the payment of all obligations arising from the draft.8
Aruego received a copy of the complaint together with the summons on December 2, 1959.9 On
December 14, 1959 the defendant filed an urgent motion for extension of time to plead, and set the
hearing on December 16, 1959.10 At the hearing, the court denied defendants motion for extension.
Whereupon, the defendant filed a motion to dismiss the complaint on December 17, 1959 on the
ground that the complaint states no cause of action because:

a) When the various bills of exchange were presented to the defendant as drawee for acceptance, the
amounts thereof had already been paid by the plaintiff to the drawer (Encal Press and Photo
Engraving), without knowledge or consent of the defendant drawee.
b) In the case of a bill of exchange, like those involved in the case at bar, the defendant drawee is an
accommodating party only for the drawer (Encal Press and Photo-Engraving) and will be liable in the
event that the accommodating party (drawer) fails to pay its obligation to the plaintiff.11
The complaint was dismissed in an order dated December 22, 1959, copy of which was received by the
defendant on December 24, 1959.12
On January 13, 1960, the plaintiff filed a motion for reconsideration.13 On March 7, 1960, acting upon
the motion for reconsideration filed by the plaintiff, the trial court set aside its order dismissing the
complaint and set the case for hearing on March 15, 1960 at 8:00 in the morning.14 A copy of the
order setting aside the order of dismissal was received by the defendant on March 11, 1960 at 5:00
oclock in the afternoon according to the affidavit of the deputy sheriff of Manila, Mamerto de la Cruz.
On the following day, March 12, 1960, the defendant filed a motion to postpone the trial of the case on
the ground that there having been no answer as yet, the issues had not yet been joined.15 On the
same date, the defendant filed his answer to the complaint interposing the following defenses: That he
signed the document upon which the plaintiff sues in his capacity as President of the Philippine
Education Foundation; that his liability is only secondary; and that he believed that he was signing only
as an accommodation party.16
On March 15, 1960, the plaintiff filed an ex parte motion to declare the defendant in default on the
ground that the defendant should have filed his answer on March 11, 1960. He contends that by filing
his answer on March 12, 1960, defendant was one day late.17 On March 19, 1960 the trial court
declared the defendant in default.18 The defendant learned of the order declaring him in default on
March 21, 1960. On March 22, 1960 the defendant filed a motion to set aside the order of default
alleging that although the order of the court dated March 7, 1960 was received on March 11, 1960 at
5:00 in the afternoon, it could not have been reasonably expected of the defendant to file his answer
on the last day of the reglementary period, March 11, 1960, within office hours, especially because the
order of the court dated March 7, 1960 was brought to the attention of counsel only in the early hours
of March 12, 1960. The defendant also alleged that he has a good and substantial defense. Attached to
the motion are the affidavits of deputy sheriff Mamerto de la Cruz that he served the order of the court
dated March 7, 1960 on March 11, 1960, at 5:00 oclock in the afternoon and the affidavit of the
defendant Aruego that he has a good and substantial defense.19 The trial court denied the
defendants motion on March 25, 1960.20 On May 6, 1960, the trial court rendered judgment
sentencing the defendant to pay to the plaintiff the sum of P35,444.35 representing the total amount
of his obligation to the said plaintiff under the twenty-two (22) causes of action alleged in the
complaint as of November 15, 1957 and the sum of P10,000.00 as attorneys fees.21
On May 9, 1960 the defendant filed a notice of appeal from the order dated March 25, 1961 denying
his motion to set aside the order declaring him in default, an appeal bond in the amount of P60.00, and
his record on appeal. The plaintiff filed his opposition to the approval of defendants record on appeal
on May 13, 1960. The following day, May 14, 1960, the lower court dismissed defendants appeal from
the order dated March 25, 1960 denying his motion to set aside the order of default.22 On May 19,
1960, the defendant filed a motion for reconsideration of the trial courts order dismissing his
appeal.23 The plaintiff, on May 20, 1960, opposed the defendants motion for reconsideration of the
order dismissing ap-peal.24 On May 21, 1960, the trial court reconsidered its previous order dismissing
the appeal and approved the defen-dants record on appeal.25 On May 30, 1960, the defendant
received a copy of a notice from the Clerk of Court dated May 26, 1960, informing the defendant that
the record on appeal fil-ed by the defendant was forwarded to the Clerk of Court of Appeals.26
On June 1, 1960 Aruego filed a motion to set aside the judgment rendered after he was declared in
default reiterating the same ground previously advanced by him in his motion for relief from the order
of default.27 Upon opposition of the plaintiff filed on June 3, 1960,28 the trial court denied the
defendants motion to set aside the judgment by default in an order of June 11, 1960.29 On June 20,
1960, the defendant filed his notice of appeal from the order of the court denying his motion to set
aside the judgment by default, his appeal bond, and his record on appeal. The defendants record on
appeal was approved by the trial court on June 25, 1960.30 Thus, the defendant had two appeals with
the Court of Appeals: (1) Appeal from the order of the lower court denying his motion to set aside the
order of default docketed as CA-G.R. NO. 27734-R; (2) Appeal from the order denying his motion to set
aside the judgment by default docketed as CA-G.R. NO. 27940-R.

In his brief, the defendant-appellant assigned the following errors:

I

THE LOWER COURT ERRED IN HOLDING THAT THE DEFENDANT WAS IN DEFAULT.
II

THE LOWER COURT ERRED IN ENTERTAINING THE MOTION TO DECLARE DEFENDANT IN DEFAULT
ALTHOUGH AT THE TIME THERE WAS ALREADY ON FILE AN ANSWER BY HIM WITHOUT FIRST DISPOSING
OF SAID ANSWER IN AN APPROPRIATE ACTION.
III

THE LOWER COURT ERRED IN DENYING DEFEN-DANTS PETITION FOR RELIEF OF ORDER OF DEFAULT
AND FROM JUDGMENT BY DEFAULT AGAINST DEFEN-DANT.31
It has been held that to entitle a party to relief from a judgment taken against him through his mistake,
inadvertence, surprise or excusable neglect, he must show to the court that he has a meritorious
defense.32 In other words, in order to set aside the order of default, the defendant must not only show
that his failure to answer was due to fraud, accident, mistake or excusable negligence but also that he
has a meritorious defense.
The record discloses that Aruego received a copy of the complaint together with the summons on
December 2, 1960; that on December 17, 1960, the last day for filing his answer, Aruego filed a motion
to dismiss; that on December 22, 1960 the lower court dismissed the complaint; that on January 23,
1960, the plaintiff filed a motion for reconsideration and on March 7, 1960, acting upon the motion for
reconsideration, the trial court issued an order setting aside the order of dismissal; that a copy of the
order was received by the defendant on March 11, 1960 at 5:00 oclock in the afternoon as shown in
the affidavit of the deputy sheriff; and that on the following day, March 12, 1960, the defendant filed
his answer to the complaint.
The failure then of the defendant to file his answer on the last day for pleading is excusable. The order
setting aside the dismissal of the complaint was received at 5:00 oclock in the afternoon. It was
therefore impossible for him to have filed his answer on that same day because the courts then held
office only up to 5:00 oclock in the afternoon. Moreover, the defendant immediately filed his answer
on the following day.
However, while the defendant successfully proved that his failure to answer was due to excusable
negligence, he has failed to show that he has a meritorious defense.
The defendant does not have a good and substantial defense. Defendant Aruegos defenses consist of
the following:
a) The defendant signed the bills of exchange referred to in the plaintiffs complaint in a representative
capacity, as the then President of the Philippine Education Foundation Company, publisher of World
Current Events and Decision Law Journal, printed by Encal Press and Photo-Engraving, drawer of the
said bills of exchange in favor of the plaintiff bank;
b) The defendant signed these bills of exchange not as principal obligor, but as accommodation or
additional party obligor, to add to the security of said plaintiff bank. The reason for this statement is
that unlike real bills of exchange, where payment of the face value is advanced to the drawer only
upon acceptance of the same by the drawee, in the case in question, payment for the supposed bills of
exchange were made before acceptance; so that in effect, although these documents are labelled bills
of exchange, legally they are not bills of exchange but mere instruments evidencing indebtedness of
the drawee who received the face value thereof, with the defendant as only additional security of the
same.33

The first defense of the defendant is that he signed the supposed bills of exchange as an agent of the
Philippine Education Foundation Company where he is president. Section 20 of the Negotiable
Instruments Law provides that Where the instrument contains or a person adds to his signature words
indicating that he signs for or on behalf of a principal or in a representative capacity, he is not liable on
the instrument if he was duly authorized; but the mere addition of words describing him as an agent or
as filing a representative character, without disclosing his principal, does not exempt him from
personal liability.
An inspection of the drafts accepted by the defendant shows that nowhere has he disclosed that he
was signing as a representative of the Philippine Education Foundation Company.34 He merely signed
as follows: JOSE ARUEGO (Acceptor) (SGD) JOSE ARUEGO. For failure to disclose his principal, Aruego
is personally liable for the drafts he accepted.
The defendant also contends that he signed the drafts only as an accommodation party and as such,
should be made liable only after a showing that the drawer is incapable of paying, this contention is
also without merit.
An accommodation party is one who has signed the instrument as maker, drawer, indorser, without
receiving value therefor and for the purpose of lending his name to some other person. Such person is
liable on the instrument to a holder for value, notwithstanding such holder, at the time of the taking of
the instrument knew him to be only an accommodation party.35 In lending his name to the
accommodated party, the accommodation party is in effect a surety for the latter. He lends his name
to enable the accommodated party to obtain credit or to raise money. He receives no part of the
consideration for the instrument but assumes liability to the other parties thereto because he wants to
accommodate another. In the instant case, the defendant signed as a drawee/acceptor. Under the
Negotiable Instrument Law, a drawee is primarily liable. Thus, if the defendant who is a lawyer, he
should not have signed as an acceptor/drawee. In doing so, he became primarily and personally liable
for the drafts.
The defendant also contends that the drafts signed by him were not really bills of exchange but mere
pieces of evidence of indebtedness because payments were made before acceptance. This is also
without merit. Under the Negotiable Instruments Law, a bill of exchange is an unconditional order in
writing addressed by one person to another, signed by the person giving it, requiring the person to
whom it is addressed to pay on demand or at a fixed or determinable future time a sum certain in
money to order or to bearer.36 As long as a commercial paper conforms with the definition of a bill of
exchange, that paper is considered a bill of exchange. The nature of acceptance is important only in
the determination of the kind of liabilities of the parties involved, but not in the determination of
whether a commercial paper is a bill of exchange or not.
It is evident then that the defendants appeal can not prosper. To grant the defendants prayer will
result in a new trial which will serve no purpose and will just waste the time of the courts as well as of
the parties because the defense is nil or ineffective.37
WHEREFORE, the order appealed from in Civil Case No. 42066 of the Court of First Instance of Manila
denying the petition for relief from the judgment rendered in said case is hereby affirmed, without
pronouncement as to costs.
SO ORDERED.

G.R. No. 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.
Civil Procedure; Execution; A judgment cannot be rendered nugatory by the unreasonable application
of a strict rule of procedure. So long as a judgment is not satisfied, a plaintiff is entitled to other writs
of execution.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 officers 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.
Civil Law; Payment; The payment to the absconding sheriff by check in his name did not operate as
satisfaction of the judgment debt.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.
Same; Same; A payment in order to be effective to discharge an obligation must be made to the
proper person.In general, a payment, in order to be effective to discharge an obligation, must be
made to the proper person. 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, 11 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 a judgment by an officer authorized by law
to accept it will, therefore, satisfy the debt.
Same; Same; Same; Ordinarily, payment by the judgment debtor in the case at bar, to the sheriff
should be valid payment to extinguish the judgment debt.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.
Same; Same; 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.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 petitioners checks, in the case at bar,
does not, per se, operate as a discharge of the judgment debt.
Commercial Law; Negotiable Instruments Law; A check whether managers check or ordinary check is
not a 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.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
(Sec. 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 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. 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.
NARVASA, J., Dissenting:

Execution; Sheriffs; Obligations; Payment by way of a check issued in the name of the sheriff in his
official capacity is a practice of common and long acceptance. It is valid.There is no question that the
checks came into the sheriffs possession in his official capacity. The court may require of the judgment
debtor, in complying with the judgment, no further burden than his vigilance in ensuring that the
person he is paying money or delivering property to is a person authorized by the court to receive it.
Beyond this, further expectations become unreasonable. To my mind, a proposal that would make the

judgment debtor unqualifiedly the insurer of the judgment creditors entitlement to the judgment
amountwhich is really what this case is all aboutbegs the question.
Same; Same Same; Same.That the checks were made out in the sheriffs name (a practice, by the
way, of long and common acceptance) is of little consequence if juxtaposed with the extent of the
authority explicitly granted him by law as the officer entrusted with the power to execute and
implement court judgments. The sheriffs requirement that the checks in payment of the judgment
debt be issued in his name was simply an assertion of that authority; and PALs compliance cannot in
the premises be faulted merely because of the sheriffs subsequent malfeasance in absconding with
the payment instead of turning it over to the judgment creditor.
FELICIANO, J., Dissenting:

Execution; Sheriffs; Obligations; A dishonest sheriff could as much abscond with the cash paid to him
or with a check drawn in his name; Sheriffs do not accept checks drawn in the name of judgment
creditor.There is no dispute with the suggestion apparently made that maximum safety is secured
where the judgment debtor delivers to the sheriff not cash but a check made out, not in the name of
the sheriff, but in the judgment creditors name. The fundamental point that must be made, however,
is that under our law only cash is legal tender and that the sheriff can be compelled to accept only
cash and not checks, even if made out to the name of the judgment creditor. The sheriff could have
quite lawfully required PAL to deliver to him only cash, i.e., Philippine currency. If the sheriff had done
so, and if PAL had complied with such a requirement, as it would have had to, one would have to agree
that legal payment must be deemed to have been effected. It requires no particularly acute mind to
note that a dishonest sheriff could easily convert the money and abscond. The fact that the sheriff in
the instant case required, not cash to be delivered to him, but rather a check made out in his name,
does not change the legal situation. PAL did not thereby become negligent; it did not make the loss
anymore possible or probable than if it had instead delivered plain cash to the sheriff.
PADILLA, J., Dissenting:

Execution; Sheriffs; Encashment of checks drawn in sheriffs name resulted effectively in a valid
payment of the judgment on execution.Did the situation change by PALs delivery of its two (2)
checks totalling P30,000.00 drawn against its bank account, payable to Sheriff Reyes, for account of
the judgment rendered against PAL? I do not think so, because when Sheriff Reyes encashed the
checks, the encashment was in fact a payment by PAL to Amelia Tan through Sheriff Reyes, an officer
of the law authorized to receive payment, and such payment discharged PALs obligation under the
executed judgment.
Same; Same; Same.If the PAL checks in question had not been encashed by Sheriff Reyes, there
would be no payment by PAL and, consequently, no discharge or satisfaction of its judgment
obligation. But the checks had been encashed by Sheriff Reyesgiving rise to a situation as if PAL had
paid Sheriff Reyes in cash, i.e., Philippine currency. This, we repeat, is payment, in legal contemplation,
on the part of PAL and this payment legally discharged PAL from its judgment obligation to the
judgment creditor. To be sure, the same encashment by Sheriff Reyes of PALs checks delivered to him
in his official capacity as Sheriff, imposed an obligation on Sheriff Reyes to pay and deliver the
proceeds of the encashment to Amelia Tan who is deemed to have acquired a cause of action against
Sheriff Reyes for his failure to deliver to her the proceeds of the encashment.
PETITION for certiorari to review the judgment of the Court of Appeals.

The facts are stated in the opinion of the Court.

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, 1967;
4. On the sixth cause of action, to pay to the plaintiff the amount of P5,000.00 damages as and for
attorneys fee.
Plaintiffs second and fifth causes of action, and defendants 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 attorneys 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 respondents 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 full 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 attorneys 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 petitioners 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 courts 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 officers 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 courts 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 a judgment 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 petitioners 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 (Sec. 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 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. 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 Sheriffs, 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 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:
x x x [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 sheriffs 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 funds and to deposit the
same in their private accounts to earn sixty (60) days interest, before said funds 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 funds 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 payees name.
The pernicious effects of issuing checks in the name of a person other than the intended payee,
without the latters 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 partys 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. x x x.
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; Blacks 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 debtors 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 debtors property to
satisfy the judgment debt. It is but to stress that the implementing officers 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 courts 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 courts decision in CA-G.R. No. 51079-R does not
totally supersede the trial courts 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 courts 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.

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.
Civil Law; Obligations and Contracts; Agency; 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 Metro-bank 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.
Mercantile Law; Negotiable Instruments; Requisites of Negotiabil-ity; An instrument to be negotiable
must contain an unconditional promise or order to pay a sum certain in money.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 trasaction which
gives rise to the instrument. 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 uncon-ditional and the warrants themselves nonnegotiable. There should be no question that the exception on Section 3 of the Negotiable Instruments
Law is applicable in the case at bar.
PETITION to review the decision of the Court of Appeals.

The facts are stated in the opinion of the Court.

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 Glorias 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. attorneys 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 attorneys 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 fail-ing to apply the clear contractual terms
and conditions on the deposit slips allowing Metrobank to charge back any amount erroneously
credited.
(a) Metrobanks 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 courts 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 Gomezs 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 clearanceand notwithstanding that it had not received a single
centavo from the proceeds of the treasury warrants, as it now repeatedly stressesit allowed Golden
Savings to withdrawnot once, not twice, but thricefrom 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 depositors
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 depositors 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. (Italics 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 depositors 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.
Metrobanks 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 petitioners 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:
SECTION 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
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.
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 pay-able 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 Cas-tillo 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. 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.

G.R. No. 154127. December 8, 2003.*

ROMEO C. GARCIA, petitioner, vs. DIONISIO V. LLAMAS, respondent.
Civil Law; Obligations; Extinguishment; Novation; Definition.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. Article 1293 of the Civil Code
defines novation.
Same; Same; Same; Same; Kinds; In general, there are two (2) modes of substituting the person of the
debtor: (1) expromision and (2) delegacion.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 fromand may even be made without the knowledge ofthe 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. Both modes of substitution by the debtor require the consent of the creditor.
Same; Same; Same; Same; Same; Novation may also be extinctive and modificatory.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 merely modificatory when the old obligation
subsists to the extent that it remains compatible with the amendatory agreement. 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.
Same; Same; Same; Same; Same; Elements; For novation to take place, the following requisites must
concur.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.
Same; Same; Same; Same; Same; Novation may also be express or implied.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. The test of incompatibility is whether the two obligations can stand together, each one
with its own independent existence.
Same; Same; Same; Same; Proof; Well-settled is the rule that nova-tion is never presumed.Wellsettled is the rule that novation is never presumed. Consequently, that which arises from a purported
change in the person of the debtor must be clear and express.
Commercial Law; Negotiable Instruments Law; Promissory Notes; As the note was made payable to a
specific person, it is covered by the general provisions of the Civil Code, not the NIL.By its terms, the
note was made payable to a specific person rather than to bearer or to ordera 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. The promissory note is thus covered by the
general provisions of the Civil Code, not by the NIL.
Same; Same; Same; Accommodation Party; Under Article 29 of Act 2031, an accommodation party is
liable for the instrument to a holder for value.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 suretythe accommodation party being the
surety. 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.
Actions; Pleadings and Practice; Summary Judgment; 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.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. 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. A summary judgment may be applied for by either
a claimant or a defending party.
Same; Same; Judgment on the Pleadings; 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.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. 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.
PETITION for review on certiorari of the decision and resolution of the Court of Appeals.

The facts are stated in the opinion of the Court.

Carlos G. Nery, Jr. for petitioner.
Felipe N. Egargo, Jr. for respondent.
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 Review1 under Rule 45 of the Rules of Court, seeking to nullify the November
26, 2001 Decision2 and the June 26, 2002 Resolution3 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. Q9732-873, 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 LlamasQuijencio, 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 pretrial 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 novationexpress or impliedhad 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 obligationbounced 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 fullblown
trial.8Petitioners Memorandum, pp. 10-11; Rollo, pp. 97-98. Original in upper case.
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 himbe it a judgment on the pleadings or a summary judgmentwas 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 fromand may even be made
without the knowledge ofthe 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 merely modificatory 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 interestswhich, in petitioners view, also constitutes novation18
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 Wellsettled 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 solidary obligation was cancelled and
substituted by the solitary undertaking of De Jesus. The CA aptly held:
x x x. Plaintiff s 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 x22
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 liable28 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 23rd day of December, 1996.30
By its terms, the note was made payable to a specific person rather than to bearer or to order31a
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 suretythe 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 Judgment
or Judgment 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 Answer40 apparently raised several issuesthat 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.