Kauffman vs PNB,
16 of the same Law.
FACTS:
Plaintiff was entitled to the sum of P98,000
from the surplus earnings of Philippine Fiber &
Produce Company (PFPC) which was placed to
his credit on the companys books. The PFPC
treasurer requested from PNB Manila that a
telegraphic transfer of S45,000 should be made
to the plaintiff in NY upon account of PFPC. The
treasurer drew and delivered a check for the
amount of P90,355 on the PNB which is the total
costs o said transfer. As evidence, a document
was made out and delivered to the PFPC
treasurer which is referred to by the banks
assistant cashier as its official receipt.
On the same day the Philippine National Bank
dispatched to its New York agency a cablegram
to the following effect:
Pay George A. Kauffman, New York,
account Philippine Fiber Produce Co.,
$45,000. (Sgd.) PHILIPPINE
NATIONAL BANK, Manila.
Upon receipt of the telegraphic message, the
banks representative advised the withholding of
the money from Kauffman, in view of his
reluctance to accept certain bills of the PFPC.
The PNB agreed and sent to its NY agency
another message to withhold the payment as
suggested.
Upon advice of the PFPC treasurer that S45,000
had been placed to his credit, he presented
himself at the PNB NY and demanded the
money but was refused due to the direction of
the withholding of payment.
ISSUE:
WON plaintiff has a right over the money
withhold under the NIL.
HELD:
No. Provisions of the NIL can come into
operation there must be a document in existence
of the character described in section 1 of the
Law; and no rights properly speaking arise in
respect to said instrument until it is delivered.
The order transmitted by PNB to its NY branch,
for the payment of a specified sum of money to
the plaintiff was not made payable to order or
to bearer, as required in subsection (d) of that
Act; and inasmuch as it never left he possession
of the bank, or its representative in NY, there
was no delivery in the sense intended in section
In connection, it is unnecessary to point out that
the official receipt delivered by the bank to the
purchaser of the telegraphic order cannot itself
be viewed in the light of a negotiable instrument,
although it affords complete proof of the
obligation actually assumed by the bank.
Government Service Insurance System vs.
Court of Appeals
FACTS:
Spouses Racho together with Spouses Lagasca
executed a deed of mortgage in favor of GSIS in
connection with 2 loans granted by the GSIS in
the sums of p11,500 and p3,000, respectively. A
parcel of land co-owned by the mortgagor
spouses was govern as security under the
aforesaid deeds and executed a promissory note
promising to pay the said amounts to GSIS
jointly, severally and solidarily.
The Lagasca spouses executed an instrument
obligating themselves in the assumption of the
aforesaid obligation and to secure the release of
the mortgage.
Failing to comply with the conditions of the
mortgage, GSIS extra judicially foreclosed the
mortgage and caused the property to be sold at
public auction.
More than 2 years after, Spouses Racho filed a
complaint against GSIS and Spouses Lagasca
praying that the extrajudicial foreclosure be
declared null and void. They allege that they
signed the mortgage contracts not as sureties for
the Lagasca spouses but merely as
accommodation party
ISSUE:
WON the promissory note and mortgage deeds
are negotiable.
HELD:
No. Section 29 of the NIL provides that an
accommodation party is one who has signed an
instrument as maker, drawer, acceptor of
indorser without receiving value therefore, but is
held liable on the instrument to a holder for
value although the latter knew him to be only an
accommodation party.
Both parties appear to be misdirected and their
reliance misplaced. The promissory note, as well
as the mortgage deeds subject of this case, are
clearly not negotiable instrument because it did
not comply with the fourth requisite to be
considered as such under Sec. 1 of the NIL
they are neither payable to order nor to bearer.
The note is payable to a specified party, the
GSIS.
Tibajia v. CA
FACTS:
Case No. 54863 was a suit for collection of a sum
of money filed by Eden Tan against the Tibajia
spouses. A writ of attachment was issued by the
trial court, and the Deputy Sheriff filed a return
stating that a deposit made by the Tibajia
spouses in the RTC of Caloocan City in the
amount of P442,750.00. in another case, had
been garnished by him.
The RTC rendered its decision in favor of Eden
Tan ordering Tibajia spouses to pay her an
amount in excess of P300,000.00. On appeal,
the CA modified the decision by reducing the
award of moral and exemplary damages. The
decision having become final, Eden Tan filed the
corresponding motion for execution and
thereafter, the garnished funds which by then
were on deposit with the cashier of the RTC of
Pasig, Metro Manila, were levied upon.
On 14 December 1990, the Tibajia spouses
delivered to Deputy Sheriff Eduardo Bolima the
total money judgment in the following form:
Cashier's Check P262,750.00 plus Cash
P135,733.70 with a total amount of P398,483.70.
Private respondent, Eden Tan, refused to accept
the payment made by the Tibajia spouses and
instead insisted that the garnished funds
deposited with the cashier of the RTC of Pasig be
withdrawn to satisfy the judgment obligation.
The defendant spouses (petitioners) filed a
motion to lift the writ of execution on the ground
that the judgment debt had already been paid.
The motion was denied by the trial court on the
ground that payment in cashier's check is not
payment in legal tender and that payment was
made by a third party other than the defendant.
The CA dismissed the petition holding that
payment by cashier's check is not payment in
legal tender as required by Republic Act No. 529.
ISSUE:
Whether or not payment by means of check
(even by cashier's check) is considered payment
in legal tender as required by the Civil Code,
Republic Act No. 529, and the Central Bank Act?
HELD:
No, The provisions of law applicable to the case
at bar are the following:
a. Article 1249 of the Civil Code which
provides:
Art. 1249. The payment of debts
in money shall be made in the
currency stipulated, and if it is
not possible to deliver such
currency, then in the currency
which is legal tender in the
Philippines.
The delivery of promissory
notes payable to order, or bills
of exchange or other mercantile
documents shall produce the
effect of payment only when
they have been cashed, or when
through the fault of the creditor
they have been impaired.
In the meantime, the action
derived from the original
obligation shall be held in
abeyance.;
b. Section 1 of Republic Act No. 529, as
amended, which provides:
Sec. 1. Every provision
contained in, or made with
respect to, any obligation which
purports to give the obligee the
right to require payment in gold
or in any particular kind of coin
or currency other than
Philippine currency or in an
amount of money of the
Philippines measured thereby,
shall be as it is hereby declared
against public policy null and
void, and of no effect, and no
such provision shall be
contained in, or made with
respect to, any obligation
 thereafter incurred. Every
obligation heretofore and
hereafter incurred, whether or
not any such provision as to
payment is contained therein or
made with respect thereto, shall
be discharged upon payment in
any coin or currency which at
the time of payment is legal
tender for public and private
debts.
c. Section 63 of Republic Act No. 265, as
amended (Central Bank Act) which
provides:
Sec. 63. Legal character
Checks representing deposit
money do not have legal tender
power and their acceptance in
the payment of debts, both
public and private, is at the
option of the creditor: Provided,
however, that a check which has
been cleared and credited to the
account of the creditor shall be
equivalent to a delivery to the
creditor of cash in an amount
equal to the amount credited to
his account.
From the aforequoted provisions of law, it is
clear that this petition must fail. A check is
not valid legal tender and the creditor may
validly refuse payment by check.
Philippine Airlines, Inc. vs. Court of
Appeals
FACTS:
Amelia Tan filed a complaint for damages
against PAL. The Lower Court ruled in her favor.
Upon appeal, the CA upheld the decision of the
Lower Court with only minor modifications as to
the damages to be awarded to Amelia Tan. The
corresponding writ of execution was duly
referred to Deputy Sheriff Emilio Z. Reyes for
enforcement.
PAL issued Checks in the name of Sheriff Reyes.
Four months later, 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.
PAL answered that it has already satisfied its
obligation, as evidenced by check vouchers
signed and received by Sheriff Reyes. The Court
has summoned the sheriff to explain the delay
but apparently he absconded or disappeared.
ISSUE:
Whether or not the payment made to the
absconding sheriff by check in his name operate
to satisfy the judgment debt.
HELD:
1. No. 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.
Under ordinary circumstances, payment by the
judgment debtor to the sheriff should be valid
payment to extinguish the judgment debt.
There are circumstances, however, which
compel a different conclusion such as when the
payment made by the petitioner to the
absconding sheriff was not in cash or legal
tender but in checks.
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.
Consequently, unless authorized to do so by law
or by consent of the obligee (creditor) 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 this case, 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. A check, whether a
managers check or ordinary cheek, is not legal
tender, and an offer of a check in payment of a
debt is not a valid tender of payment and may be
refused receipt by the obligee or creditor. Mere
delivery of checks does not discharge the
obligation under a judgment. The obligation is
not extinguished and remains suspended until
the payment by commercial document is actually
realized (Art. 1249, Civil Code, par. 3).
Dissenting Opinions:
Narvasa, J.
If payment had been in cash, no
question about its validity or of the
authority and duty of the sheriff to
accept it in settlement of PALs
judgment obligation would even have
arisen. Simply because it was made by
checks issued in the sheriff s name does
not warrant reaching any different
conclusion.
As payment to the court discharges the
judgment debtor from his responsibility
on the judgment, so too must payment
to the person designated by such court
and authorized to act in its behalf,
operate to produce the same effect.
Feliciano, J.
It requires no particularly acute mind to
note that a dishonest sheriff could easily
convert the money and abscond. The
fact that the sheriff in the instant case
required, not cash to be delivered to
him, but rather a check made out in his
name, does not change the legal
situation. PAL did not thereby become
negligent; it did not make the loss
anymore possible or probable than if it
had instead delivered plain cash to the
sheriffs.
Risk is most appropriately borne not by
the judgment debtor, nor indeed by the
judgment creditor, but by the State
itself.
Padilla, J.
PAL had every right to assume that, as
an officer of the law, Sheriff Reyes would
perform his duties as enjoined by law. If
a judgment debtor cannot rely on and
trust an officer of the law, as the Sheriff,
whom else can he trust?
The duty of the sheriff to pay the cash to
the judgment creditor would be a matter
separate the distinct from the fact that
PAL would have satisfied its judgment
obligation to Amelia Tan, the judgment
creditor, by delivering the cash amount
due under the judgment to Sheriff
Reyes.
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.
If the PAL checks in question had
not been encashed by Sheriff
Reyes, there would be no payment
by PAL.
The payment of money to the sheriff
having an execution satisfies it, and, if
the plaintiff fails to receive it, his only
remedy is against the officer.
Payment of an execution satisfies it
without regard to whether the officer
pays it over to the creditor or misapplies
it. If defendant consents to the Sheriff s
misapplication of the money, however,
defendant is estopped to claim that the
debt is satisfied.
Raul Sesbreno, vs. Court of Appeals,
Delta Motors Corporation and Pilipinas
Bank
FACTS:
Petitioner Raul Sesbreo made a money market
placement in the amount of P300,000.00 with
the Philippine Underwriters Finance
Corporation ("Philfinance") with a term of 32
days. PhilFinance issued to Sesbreno the
Certificate of Confirmation of Sale of a Delta
Motor Corporation Promissory Note 2731, the
Certificate of Securities Delivery Receipt
indicating the sale of the note with notation that
said security was in the custody of Pilipinas
Bank, and postdated checks drawn against the
Insular Bank of Asia and America for P304,
533.33 payable on 13 March 1981. Upon its
maturity, petitioner sought to encash the
postdated checks but they were dishonored for
having insufficient funds.

Petitioner then issued a demand letter to private

respondent Pilipinas Bank, but the note was
never released nor any instrument related
thereto. Petitioner also made a written demand
upon private respondent Delta as maker for the
partial satisfaction of DMC PN No. 2731,
explaining that Philfinance, as payee thereof,
had assigned to him said Note. Delta, however,
denied any liability to petitioner on the
promissory note.

As petitioner had failed to collect his investment

and interest thereon, he filed an action for
damages with the RTC against private
respondents Delta and Pilipinas. The complaint
was dismissed and was affirmed by the CA on
appeal.

ISSUE:
WON a non-negotiable promissory note be
assigned.

RULING:
Only an instrument qualifying as a negotiable
instrument under the relevant statute may be
negotiated either by indorsement thereof
coupled with delivery or by delivery alone where
the negotiable instrument is in bearer form. A
negotiable instrument may, however, instead of
being negotiated, also
be assigned or transferred. The legal
consequences of negotiation as distinguished
from assignment of a negotiable instrument are,
of course, different. A non-negotiable
instrument may, obviously, not be negotiated;
but it may be assigned or transferred, absent an
express prohibition against assignment or
transfer written in the face of the instrument.

In this case, while the promissory note was

marked "non-negotiable," it was not at the same
time stamped "non-transferable" or "non-
assignable." Hence, there is no stipulation which
prohibited the promissory notes assigning or
transferring, in whole or in part.