Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-22405 June 30, 1971

PHILIPPINE EDUCATION CO., INC., plaintiff-appellant,

vs.
MAURICIO A. SORIANO, ET AL., defendant-appellees.

Marcial Esposo for plaintiff-appellant.

Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General Antonio G. Ibarra
and Attorney Concepcion Torrijos-Agapinan for defendants-appellees.

DIZON, J.:

An appeal from a decision of the Court of First Instance of Manila dismissing the complaint
filed by the Philippine Education Co., Inc. against Mauricio A. Soriano, Enrico Palomar and
Rafael Contreras.

On April 18, 1958 Enrique Montinola sought to purchase from the Manila Post Office ten
(10) money orders of P200.00 each payable to E.P. Montinola withaddress at Lucena,
Quezon. After the postal teller had made out money ordersnumbered 124685, 124687-
124695, Montinola offered to pay for them with a private checks were not generally
accepted in payment of money orders, the teller advised him to see the Chief of the Money
Order Division, but instead of doing so, Montinola managed to leave building with his own
check and the ten(10) money orders without the knowledge of the teller.

On the same date, April 18, 1958, upon discovery of the disappearance of the unpaid
money orders, an urgent message was sent to all postmasters, and the following day notice
was likewise served upon all banks, instructing them not to pay anyone of the money orders
aforesaid if presented for payment. The Bank of America received a copy of said notice
three days later.

On April 23, 1958 one of the above-mentioned money orders numbered 124688 was
received by appellant as part of its sales receipts. The following day it deposited the same
with the Bank of America, and one day thereafter the latter cleared it with the Bureau of
Posts and received from the latter its face value of P200.00.

On September 27, 1961, appellee Mauricio A. Soriano, Chief of the Money Order Division of
the Manila Post Office, acting for and in behalf of his co-appellee, Postmaster Enrico
Palomar, notified the Bank of America that money order No. 124688 attached to his letter
had been found to have been irregularly issued and that, in view thereof, the amount it
represented had been deducted from the bank's clearing account. For its part, on August 2
of the same year, the Bank of America debited appellant's account with the same amount
and gave it advice thereof by means of a debit memo.

On October 12, 1961 appellant requested the Postmaster General to reconsider the action
taken by his office deducting the sum of P200.00 from the clearing account of the Bank of
America, but his request was denied. So was appellant's subsequent request that the
matter be referred to the Secretary of Justice for advice. Thereafter, appellant elevated the
matter to the Secretary of Public Works and Communications, but the latter sustained the
actions taken by the postal officers.

In connection with the events set forth above, Montinola was charged with theft in the Court
of First Instance of Manila (Criminal Case No. 43866) but after trial he was acquitted on the
ground of reasonable doubt.

On January 8, 1962 appellant filed an action against appellees in the Municipal Court of
Manila praying for judgment as follows:

WHEREFORE, plaintiff prays that after hearing defendants be ordered:

(a) To countermand the notice given to the Bank of America on September

27, 1961, deducting from the said Bank's clearing account the sum of
P200.00 represented by postal money order No. 124688, or in the alternative
indemnify the plaintiff in the same amount with interest at 8-½% per annum
from September 27, 1961, which is the rate of interest being paid by plaintiff
on its overdraft account;

(b) To pay to the plaintiff out of their own personal funds, jointly and severally,
actual and moral damages in the amount of P1,000.00 or in such amount as
will be proved and/or determined by this Honorable Court: exemplary
damages in the amount of P1,000.00, attorney's fees of P1,000.00, and the
costs of action.

Plaintiff also prays for such other and further relief as may be deemed just
and equitable.

On November 17, 1962, after the parties had submitted the stipulation of facts reproduced
at pages 12 to 15 of the Record on Appeal, the above-named court rendered judgment as
follows:

WHEREFORE, judgment is hereby rendered, ordering the defendants to

countermand the notice given to the Bank of America on September 27,
1961, deducting from said Bank's clearing account the sum of P200.00
representing the amount of postal money order No. 124688, or in the
alternative, to indemnify the plaintiff in the said sum of P200.00 with interest
thereon at the rate of 8-½% per annum from September 27, 1961 until fully
paid; without any pronouncement as to cost and attorney's fees.

The case was appealed to the Court of First Instance of Manila where, after the parties had
resubmitted the same stipulation of facts, the appealed decision dismissing the complaint,
with costs, was rendered.

The first, second and fifth assignments of error discussed in appellant's brief are related to
the other and will therefore be discussed jointly. They raise this main issue: that the postal
money order in question is a negotiable instrument; that its nature as such is not in anyway
affected by the letter dated October 26, 1948 signed by the Director of Posts and addressed
to all banks with a clearing account with the Post Office, and that money orders, once
issued, create a contractual relationship of debtor and creditor, respectively, between the
government, on the one hand, and the remitters payees or endorses, on the other.

It is not disputed that our postal statutes were patterned after statutes in force in the United
States. For this reason, ours are generally construed in accordance with the construction
given in the United States to their own postal statutes, in the absence of any special reason
justifying a departure from this policy or practice. The weight of authority in the United
States is that postal money orders are not negotiable instruments (Bolognesi vs. U.S. 189
Fed. 395; U.S. vs. Stock Drawers National Bank, 30 Fed. 912), the reason behind this rule
being that, in establishing and operating a postal money order system, the government is
not engaging in commercial transactions but merely exercises a governmental power for the
public benefit.

It is to be noted in this connection that some of the restrictions imposed upon money orders
by postal laws and regulations are inconsistent with the character of negotiable instruments.
For instance, such laws and regulations usually provide for not more than one
endorsement; payment of money orders may be withheld under a variety of circumstances
(49 C.J. 1153).

Of particular application to the postal money order in question are the conditions laid down
in the letter of the Director of Posts of October 26, 1948 (Exhibit 3) to the Bank of America
for the redemption of postal money orders received by it from its depositors. Among others,
the condition is imposed that "in cases of adverse claim, the money order or money orders
involved will be returned to you (the bank) and the, corresponding amount will have to be
refunded to the Postmaster, Manila, who reserves the right to deduct the value thereof from
any amount due you if such step is deemed necessary." The conditions thus imposed in
order to enable the bank to continue enjoying the facilities theretofore enjoyed by its
depositors, were accepted by the Bank of America. The latter is therefore bound by them.
That it is so is clearly referred from the fact that, upon receiving advice that the amount
represented by the money order in question had been deducted from its clearing account
with the Manila Post Office, it did not file any protest against such action.

Moreover, not being a party to the understanding existing between the postal officers, on
the one hand, and the Bank of America, on the other, appellant has no right to assail the
terms and conditions thereof on the ground that the letter setting forth the terms and
conditions aforesaid is void because it was not issued by a Department Head in accordance
with Sec. 79 (B) of the Revised Administrative Code. In reality, however, said legal provision
does not apply to the letter in question because it does not provide for a department
regulation but merely sets down certain conditions upon the privilege granted to the Bank of
Amrica to accept and pay postal money orders presented for payment at the Manila Post
Office. Such being the case, it is clear that the Director of Posts had ample authority to
issue it pursuant to Sec. 1190 of the Revised Administrative Code.

In view of the foregoing, We do not find it necessary to resolve the issues raised in the third
and fourth assignments of error.

WHEREFORE, the appealed decision being in accordance with law, the same is hereby
affirmed with costs.
Philippine Education Co. vs. Soriano

L-22405 June 30, 1971

Dizon, J.:

Facts:
Enrique Montinola sought to purchase from Manila Post Office ten money orders of
200php each payable to E. P. Montinola. Montinola offered to pay with the money orders with a
private check. Private check were not generally accepted in payment of money orders, the teller
advised him to see the Chief of the Money Order Division, but instead of doing so, Montinola
managed to leave the building without the knowledge of the teller. Upon the disappearance of the
unpaid money order, a message was sent to instruct all banks that it must not pay for the money
order stolen upon presentment. The Bank of America received a copy of said notice. However,
The Bank of America received the money order and deposited it to the appellant’s account upon
clearance. Mauricio Soriano, Chief of the Money Order Division notified the Bank of America
that the money order deposited had been found to have been irregularly issued and that, the
amount it represented had been deducted from the bank’s clearing account. The Bank of America
debited appellant’s account with the same account and give notice by mean of debit memo.

Issue:
Whether or not the postal money order in question is a negotiable instrument

Held:
No. It is not disputed that the Philippine postal statutes were patterned after similar statutes in
force in United States. The Weight of authority in the United States is that postal money orders
are not negotiable instruments, the reason being that in establishing and operating a postal money
order system, the government is not engaged in commercial transactions but merely exercises a
governmental power for the public benefit. Moreover, some of the restrictions imposed upon
money orders by postal laws and regulations are inconsistent with the character of negotiable
instruments. For instance, such laws and regulations usually provide for not more than one
endorsement; payment of money orders may be withheld under a variety of circumstances.
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 100290 June 4, 1993

NORBERTO TIBAJIA, JR. and CARMEN TIBAJIA, petitioners,

vs.
THE HONORABLE COURT OF APPEALS and EDEN TAN, respondents.

PADILLA, J.:

Petitioners, spouses Norberto Tibajia, Jr. and Carmen Tibajia, are before this Court
assailing the decision * of respondent appellate court dated 24 April 1991 in CA-G.R. SP
No. 24164 denying their petition for certiorari prohibition, and injunction which sought to
annul the order of Judge Eutropio Migriño of the Regional Trial Court, Branch 151, Pasig,
Metro Manila in Civil Case No. 54863 entitled "Eden Tan vs. Sps. Norberto and Carmen
Tibajia."

Stated briefly, the relevant facts are as follows:

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 on 17 August 1987 and
on 17 September 1987, the Deputy Sheriff filed a return stating that a deposit made by the
Tibajia spouses in the Regional Trial Court of Kalookan City in the amount of Four Hundred
Forty Two Thousand Seven Hundred and Fifty Pesos (P442,750.00) in another case, had
been garnished by him. On 10 March 1988, the Regional Trial Court, Branch 151 of Pasig,
Metro Manila rendered its decision in Civil Case No. 54863 in favor of the plaintiff Eden Tan,
ordering the Tibajia spouses to pay her an amount in excess of Three Hundred Thousand
Pesos (P300,000.00). On appeal, the Court of Appeals 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 Regional Trial Court 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

Cash 135,733.70
————
Total 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 Regional
Trial Court of Pasig, Metro Manila be withdrawn to satisfy the judgment obligation. On 15
January 1991, defendant spouses (petitioners) filed a motion to lift the writ of execution on
the ground that the judgment debt had already been paid. On 29 January 1991, 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. A
motion for reconsideration was denied on 8 February 1991. Thereafter, the spouses Tibajia
filed a petition for certiorari, prohibition and injunction in the Court of Appeals. The appellate
court dismissed the petition on 24 April 1991 holding that payment by cashier's check is not
payment in legal tender as required by Republic Act No. 529. The motion for
reconsideration was denied on 27 May 1991.

In this petition for review, the Tibajia spouses raise the following issues:

I WHETHER OR NOT THE BPI CASHIER'S CHECK NO. 014021 IN THE

AMOUNT OF P262,750.00 TENDERED BY PETITIONERS FOR PAYMENT
OF THE JUDGMENT DEBT, IS "LEGAL TENDER".

II WHETHER OR NOT THE PRIVATE RESPONDENT MAY VALIDLY

REFUSE THE TENDER OF PAYMENT PARTLY IN CHECK AND PARTLY IN
CASH MADE BY PETITIONERS, THRU AURORA VITO AND COUNSEL,
FOR THE SATISFACTION OF THE MONETARY OBLIGATION OF
PETITIONERS-SPOUSES. 1

The only issue to be resolved in this case is 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.

It is contended by the petitioners that the check, which was a cashier's check of the Bank of
the Philippine Islands, undoubtedly a bank of good standing and reputation, and which was
a crossed check marked "For Payee's Account Only" and payable to private respondent
Eden Tan, is considered legal tender, payment with which operates to discharge their
monetary obligation. Petitioners, to support their contention, cite the case of New Pacific
2

Timber and Supply Co., Inc. v. Señeris where this Court held through Mr. Justice
3

Hermogenes Concepcion, Jr. that "It is a well-known and accepted practice in the business
sector that a cashier's check is deemed as cash".

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.

In the recent cases of Philippine Airlines, Inc. vs. Court of Appeals and Roman Catholic
4

Bishop of Malolos, Inc. vs. Intermediate Appellate Court, this Court held that —
5

A check, whether a manager's 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.

The ruling in these two (2) cases merely applies the statutory provisions which lay down the
rule that a check is not legal tender and that a creditor may validly refuse payment by
check, whether it be a manager's, cashier's or personal check.

Petitioners erroneously rely on one of the dissenting opinions in the Philippine

Airlines case to support their cause. The dissenting opinion however does not in any way
6

support the contention that a check is legal tender but, on the contrary, states that "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." Moreover, the circumstances in the Philippine Airlines case are quite different
7

from those in the case at bar for in that case the checks issued by the judgment debtor were
made payable to the sheriff, Emilio Z. Reyes, who encashed the checks but failed to deliver
the proceeds of said encashment to the judgment creditor.

In the more recent case of Fortunado vs. Court of Appeals, this Court stressed that, "We
8

are not, by this decision, sanctioning the use of a check for the payment of obligations over
the objection of the creditor."

WHEREFORE, the petition is DENIED. The appealed decision is hereby AFFIRMED, with
costs against the petitioners.

SO ORDERED.
Tibajia Jr. v. Court of Appeals [G.R. No. 100290. June 4, 1993]
FACTS

Tibajia spouses delivered to Sheriff the total money judgment in cashier’s check and
cash.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 Regional Trial
Court of Pasig, Metro Manila be withdrawn to satisfy the judgment obligation. Tibajias filed a
motion to lift the writ of execution on the ground that the judgment debt had already been paid.
The motion was denied.

ISSUE

Whether or not payment by means of cashier’s check is considered payment in legal tender.

RULING

NO. A check, whether a manager’s 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. A check is not legal tender and that a creditor may validly refuse payment by
check, whether it be a manager’s, cashier’s or personal check. The Supreme Court stressed
that, “We are not, by this decision, sanctioning the use of a check for the payment of obligations
over the objection of the creditor.”
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

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

PHILIPPINE AIRLINES, INC., petitioner,

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

GUTIERREZ, JR., J.:

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

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

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

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

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

Lines:

1. On the first cause of action, to pay to the plaintiff the amount of P75,000.00
as actual damages, with legal interest thereon from plaintiffs extra-judicial
demand made by the letter of July 20, 1967;

2. On the third cause of action, to pay to the plaintiff the amount of

P18,200.00, representing the unrealized profit of 10% included in the contract
price of P200,000.00 plus legal interest thereon from July 20,1967;

3. On the fourth cause of action, to pay to the plaintiff the amount of

P20,000.00 as and for moral damages, with legal interest thereon from July
20, 1 967;

4. On the sixth cause of action, to pay to the plaintiff the amount of P5,000.00
damages as and for attorney's fee.
 Plaintiffs second and fifth causes of action, and defendant's counterclaim, are
dismissed.

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

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

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

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

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

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

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

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

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

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

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

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

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

As prayed for by counsel for the plaintiff, the Motion to Withdraw 'Motion for Partial
Alias Writ of Execution with Substitute Motion for Alias Writ of Execution is hereby
granted, and the motion for partial alias writ of execution is considered withdrawn.
 Let an Alias Writ of Execution issue against the defendant for the fall satisfaction of
the judgment rendered. Deputy Sheriff Jaime K. del Rosario is hereby appointed
Special Sheriff for the enforcement thereof. (CA Rollo, p. 34)

On May 18, 1978, the petitioner received a copy of the first alias writ of execution issued on
the same day directing Special Sheriff Jaime K. del Rosario to levy on execution in the sum
of P25,000.00 with legal interest thereon from July 20,1967 when respondent Amelia Tan
made an extra-judicial demand through a letter. Levy was also ordered for the further sum
of P5,000.00 awarded as attorney's fees.

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

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

AN ALIAS WRIT OF EXECUTION CANNOT BE ISSUED WITHOUT PRIOR

RETURN OF THE ORIGINAL WRIT BY THE IMPLEMENTING OFFICER.

II

PAYMENT OF JUDGMENT TO THE IMPLEMENTING OFFICER AS DIRECTED IN

THE WRIT OF EXECUTION CONSTITUTES SATISFACTION OF JUDGMENT.

III

INTEREST IS NOT PAYABLE WHEN THE DECISION IS SILENT AS TO THE

PAYMENT THEREOF.

IV

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

JUDGMENT DEBTOR AND DISPOSAL OR SALE THEREOF TO SATISFY
JUDGMENT.

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

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

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

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

Indeed, technicality cannot be countenanced to defeat the execution of a judgment for

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

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

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

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

She filed her complaint in 1967.

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

It is now 1990.

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

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

In general, a payment, in order to be effective to discharge an obligation, must be made to

the proper person. Article 1240 of the Civil Code provides:
 Payment shall be made to the person in whose favor the obligation has been
constituted, or his successor in interest, or any person authorized to receive
it. (Emphasis supplied)

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

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

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

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

Did such payments extinguish the judgment debt?

Article 1249 of the Civil Code provides:

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

The delivery of promissory notes payable to order, or bills of exchange or other

mercantile documents shall produce the effect of payment only when they have been
cashed, or when through the fault of the creditor they have been impaired.

In the meantime, the action derived from the original obligation shall be held in
abeyance.

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

Since a negotiable instrument is only a substitute for money and not money, the delivery of
such an instrument does not, by itself, operate as payment (See. 189, Act 2031 on Negs.
Insts.; Art. 1249, Civil Code; Bryan Landon Co. v. American Bank, 7 Phil. 255; Tan Sunco v.
Santos, 9 Phil. 44; 21 R.C.L. 60, 61). A check, whether a manager's check or ordinary
cheek, is not legal tender, and an offer of a check in payment of a debt is not a valid tender
of payment and may be refused receipt by the obligee or creditor. Mere delivery of checks
does not discharge the obligation under a judgment. The obligation is not extinguished and
remains suspended until the payment by commercial document is actually realized (Art.
1249, Civil Code, par. 3).
If bouncing checks had been issued in the name of Amelia Tan and not the Sheriff's, there
would have been no payment. After dishonor of the checks, Ms. Tan could have run after
other properties of PAL. The theory is that she has received no value for what had been
awarded her. Because the checks were drawn in the name of Emilio Z. Reyes, neither has
she received anything. The same rule should apply.

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

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

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

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

As a protective measure, therefore, the courts encourage the practice of payments by

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

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

As explained and held by the respondent court:

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

As between two innocent persons, one of whom must suffer the consequence of a
breach of trust, the one who made it possible by his act of confidence must bear the
loss. (Blondeau, et al. v. Nano, et al., L-41377, July 26, 1935, 61 Phil. 625)
Having failed to employ the proper safeguards to protect itself, the judgment debtor whose
act made possible the loss had but itself to blame.

The attention of this Court has been called to the bad practice of a number of executing
officers, of requiring checks in satisfaction of judgment debts to be made out in their own
names. If a sheriff directs a judgment debtor to issue the checks in the sheriff's name,
claiming he must get his commission or fees, the debtor must report the sheriff immediately
to the court which ordered the execution or to the Supreme Court for appropriate
disciplinary action. Fees, commissions, and salaries are paid through regular channels. This
improper procedure also allows such officers, who have sixty (60) days within which to
make a return, to treat the moneys as their personal finds and to deposit the same in their
private accounts to earn sixty (60) days interest, before said finds are turned over to the
court or judgment creditor (See Balgos v. Velasco, 108 SCRA 525 [1981]). Quite as easily,
such officers could put up the defense that said checks had been issued to them in their
private or personal capacity. Without a receipt evidencing payment of the judgment debt,
the misappropriation of finds by such officers becomes clean and complete. The practice is
ingenious but evil as it unjustly enriches court personnel at the expense of litigants and the
proper administration of justice. The temptation could be far greater, as proved to be in this
case of the absconding sheriff. The correct and prudent thing for the petitioner was to have
issued the checks in the intended payee's name.

The pernicious effects of issuing checks in the name of a person other than the intended
payee, without the latter's agreement or consent, are as many as the ways that an artful
mind could concoct to get around the safeguards provided by the law on negotiable
instruments. An angry litigant who loses a case, as a rule, would not want the winning party
to get what he won in the judgment. He would think of ways to delay the winning party's
getting what has been adjudged in his favor. We cannot condone that practice especially in
cases where the courts and their officers are involved. We rule against the petitioner.
1âwphi1

Anent the applicability of Section 15, Rule 39, as follows:

Section 15. Execution of money judgments. — The officer must enforce an execution
of a money judgment by levying on all the property, real and personal of every name
and nature whatsoever, and which may be disposed of for value, of the judgment
debtor not exempt from execution, or on a sufficient amount of such property, if they
be sufficient, and selling the same, and paying to the judgment creditor, or his
attorney, so much of the proceeds as will satisfy the judgment. ...

the respondent court held:

We are obliged to rule that the judgment debt cannot be considered satisfied and
therefore the orders of the respondent judge granting the alias writ of execution may
not be pronounced as a nullity.

xxx xxx xxx

It is clear and manifest that after levy or garnishment, for a judgment to be executed
there is the requisite of payment by the officer to the judgment creditor, or his
attorney, so much of the proceeds as will satisfy the judgment and none such
payment had been concededly made yet by the absconding Sheriff to the private
respondent Amelia Tan. The ultimate and essential step to complete the execution of
the judgment not having been performed by the City Sheriff, the judgment debt
legally and factually remains unsatisfied.

Strictly speaking execution cannot be equated with satisfaction of a judgment. Under

unusual circumstances as those obtaining in this petition, the distinction comes out clearly.

Execution is the process which carries into effect a decree or judgment (Painter v. Berglund,
31 Cal. App. 2d. 63, 87 P 2d 360, 363; Miller v. London, 294 Mass 300, 1 NE 2d 198, 200;
Black's Law Dictionary), whereas the satisfaction of a judgment is the payment of the
amount of the writ, or a lawful tender thereof, or the conversion by sale of the debtor's
property into an amount equal to that due, and, it may be done otherwise than upon an
execution (Section 47, Rule 39). Levy and delivery by an execution officer are not
prerequisites to the satisfaction of a judgment when the same has already been realized in
fact (Section 47, Rule 39). Execution is for the sheriff to accomplish while satisfaction of the
judgment is for the creditor to achieve. Section 15, Rule 39 merely provides the sheriff with
his duties as executing officer including delivery of the proceeds of his levy on the debtor's
property to satisfy the judgment debt. It is but to stress that the implementing officer's duty
should not stop at his receipt of payments but must continue until payment is delivered to
the obligor or creditor.

Finally, we find no error in the respondent court's pronouncement on the inclusion of

interests to be recovered under the alias writ of execution. This logically follows from our
ruling that PAL is liable for both the lost checks and interest. The respondent court's
decision in CA-G.R. No. 51079-R does not totally supersede the trial court's judgment in
Civil Case No. 71307. It merely modified the same as to the principal amount awarded as
actual damages.

WHEREFORE, IN VIEW OF THE FOREGOING, the petition is hereby DISMISSED. The

judgment of the respondent Court of Appeals is AFFIRMED and the trial court's issuance of
the alias writ of execution against the petitioner is upheld without prejudice to any action it
should take against the errant sheriff Emilio Z. Reyes. The Court Administrator is ordered to
follow up the actions taken against Emilio Z. Reyes.

SO ORDERED.

Fernan, C.J., Cruz, Paras, Bidin, Griño-Aquino, Medialdea and Regalado, JJ., concur.

Separate Opinions

NARVASA, J., dissenting:

The execution of final judgments and orders is a function of the sheriff, an officer of the
court whose authority is by and large statutorily determined to meet the particular
exigencies arising from or connected with the performance of the multifarious duties of the
office. It is the acknowledgment of the many dimensions of this authority, defined by statute
and chiselled by practice, which compels me to disagree with the decision reached by the
majority.

A consideration of the wide latitude of discretion allowed the sheriff as the officer of the court
most directly involved with the implementation and execution of final judgments and orders
persuades me that PAL's payment to the sheriff of its judgment debt to Amelia Tan, though
made by check issued in said officer's name, lawfully satisfied said obligation and
foreclosed further recourse therefor against PAL, notwithstanding the sheriffs failure to
deliver to Tan the proceeds of the check.

It is a matter of history that the judiciary .. is an inherit or of the Anglo-American

tradition. While the common law as such .. "is not in force" in this jurisdiction, "to
breathe the breath of life into many of the institutions, introduced [here] under
American sovereignty, recourse must be had to the rules, principles and doctrines of
the common law under whose protecting aegis the prototypes of these institutions
had their birth" A sheriff is "an officer of great antiquity," and was also called the shire
 reeve. A shire in English law is a Saxon word signifying a division later called a
county. A reeve is an ancient English officer of justice inferior in rank to an
alderman .. appointed to process, keep the King's peace, and put the laws in
execution. From a very remote period in English constitutional history .. the shire had
another officer, namely the shire reeve or as we say, the sheriff. .. The Sheriff was
the special representative of the legal or central authority, and as such usually
nominated by the King. .. Since the earliest times, both in England and the United
States, a sheriff has continued his status as an adjunct of the court .. . As it was
there, so it has been in the Philippines from the time of the organization of the
judiciary .. . (J. Fernando's concurring opinion in Bagatsing v. Herrera, 65 SCRA 434)

One of a sheriff s principal functions is to execute final judgments and orders. The Rules of
Court require the writs of execution to issue to him, directing him to enforce such judgments
and orders in the manner therein provided (Rule 39). The mode of enforcement varies
according to the nature of the judgment to be carried out: whether it be against property of
the judgment debtor in his hands or in the hands of a third person i e. money judgment), or
for the sale of property, real or personal (i.e. foreclosure of mortgage) or the delivery
thereof, etc. (sec. 8, Rule 39).

Under sec. 15 of the same Rule, the sheriff is empowered to levy on so much of the
judgment debtor's property as may be sufficient to enforce the money judgment and sell
these properties at public auction after due notice to satisfy the adjudged amount. It is the
sheriff who, after the auction sale, conveys to the purchaser the property thus sold (secs.
25, 26, 27, Rule 39), and pays the judgment creditor so much of the proceeds as will satisfy
the judgment. When the property sold by him on execution is an immovable which
consequently gives rise to a light of redemption on the part of the judgment debtor and
others (secs. 29, 30, Rule 39), it is to him (or to the purchaser or redemptioner that the
payments may be made by those declared by law as entitled to redeem (sec. 31, Rule 39);
and in this situation, it becomes his duty to accept payment and execute the certificate of
redemption (Enage v. Vda. y Hijos de Escano, 38 Phil. 657, cited in Moran, Comments on
the Rules of Court, 1979 ed., vol. 2, pp. 326-327). It is also to the sheriff that "written notice
of any redemption must be given and a duplicate filed with the registrar of deeds of the
province, and if any assessments or taxes are paid by the redemptioner or if he has or
acquires any lien other than that upon which the redemption was made, notice thereof must
in like manner be given to the officer and filed with the registrar of deeds," the effect of
failure to file such notice being that redemption may be made without paying such
assessments, taxes, or liens (sec. 30, Rule 39).

The sheriff may likewise be appointed a receiver of the property of the judgment debtor
where the appointment of the receiver is deemed necessary for the execution of the
judgment (sec. 32, Rule 39).

At any time before the sale of property on execution, the judgment debtor may prevent the
sale by paying the sheriff the amount required by the execution and the costs that have
been incurred therein (sec. 20, Rule 39).

The sheriff is also authorized to receive payments on account of the judgment debt
tendered by "a person indebted to the judgment debtor," and his "receipt shall be a sufficient
discharge for the amount so paid or directed to be credited by the judgment creditor on the
execution" (sec. 41, Rule 39).

Now, obviously, the sheriff s sale extinguishes the liability of the judgment debtor either in
fun, if the price paid by the highest bidder is equal to, or more than the amount of the
judgment or pro tanto if the price fetched at the sale be less. Such extinction is not in any
way dependent upon the judgment creditor's receiving the amount realized, so that the
conversion or embezzlement of the proceeds of the sale by the sheriff does not revive the
judgment debt or render the judgment creditor liable anew therefor.
So, also, the taking by the sheriff of, say, personal property from the judgment debtor for
delivery to the judgment creditor, in fulfillment of the verdict against him, extinguishes the
debtor's liability; and the conversion of said property by the sheriff, does not make said
debtor responsible for replacing the property or paying the value thereof.

In the instances where the Rules allow or direct payments to be made to the sheriff, the
payments may be made by check, but it goes without saying that if the sheriff so desires, he
may require payment to be made in lawful money. If he accepts the check, he places
himself in a position where he would be liable to the judgment creditor if any damages are
suffered by the latter as a result of the medium in which payment was made (Javellana v.
Mirasol, et al., 40 Phil. 761). The validity of the payment made by the judgment debtor,
however, is in no wise affected and the latter is discharged from his obligation to the
judgment creditor as of the moment the check issued to the sheriff is encashed and the
proceeds are received by Id. office. The issuance of the check to a person authorized to
receive it (Art. 1240, Civil Code; See. 46 of the Code of Civil Procedure; Enage v. Vda y
Hijos de Escano, 38 Phil. 657, cited in Javellana v. Mirasol, 40 Phil. 761) operates to
release the judgment debtor from any further obligations on the judgment.

The sheriff is an adjunct of the court; a court functionary whose competence involves both
discretion and personal liability (concurring opinion of J. Fernando, citing Uy Piaoco v.
Osmena, 9 Phil. 299, in Bagatsing v. Herrera, 65 SCRA 434). Being an officer of the court
and acting within the scope of his authorized functions, the sheriff s receipt of the checks in
payment of the judgment execution, may be deemed, in legal contemplation, as received by
the court itself (Lara v. Bayona, 10 May 1955, No. L- 10919).

That the sheriff functions as a conduit of the court is further underscored by the fact that one
of the requisites for appointment to the office is the execution of a bond, "conditioned (upon)
the faithful performance of his (the appointee's) duties .. for the delivery or payment to
Government, or the person entitled thereto, of all properties or sums of money that shall
officially come into his hands" (sec. 330, Revised Administrative Code).

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 creditor's entitlement to the judgment
amount which is really what this case is all about begs the question.

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 PAL's
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.

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 PAL's 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.

It is unfortunate and deserving of commiseration that Amelia Tan was deprived of what was
adjudged to her when the sheriff misappropriated the payment made to him by PAL in
dereliction of his sworn duties. But I submit that her remedy lies, not here and in reviving
liability under a judgment already lawfully satisfied, but elsewhere.

ACCORDINGLY, I vote to grant the petition.

Melencio-Herrera, Gancayco, J., concurs.

FELICIANO, J., dissenting:

I concur in the able dissenting opinions of Narvasa and Padilla, JJ. and would merely wish
to add a few footnotes to their lucid opinions.

1. Narvasa, J. has demonstrated in detail that a sheriff is authorized by the Rules of

Court and our case law to receive either legal tender or checks from the judgment
debtor in satisfaction of the judgment debt. In addition, Padilla, J. has underscored
the obligation of the sheriff, imposed upon him by the nature of his office and the law,
to turn over such legal tender, checks and proceeds of execution sales to the
judgment creditor. The failure of a sheriff to effect such turnover and his conversion
of the funds (or goods) held by him to his own uses, do not have the effect of
frustrating payment by and consequent discharge of the judgment debtor.

To hold otherwise would be to throw the risk of the sheriff faithfully performing his
duty as a public officer upon those members of the general public who are compelled
to deal with him. It seems to me that a judgment debtor who turns over funds or
property to the sheriff can not reasonably be made an insurer of the honesty and
integrity of the sheriff and that the risk of the sheriff carrying out his duties honestly
and faithfully is properly lodged in the State itself The sheriff, like all other officers of
the court, is appointed and paid and controlled and disciplined by the Government,
more specifically by this Court. The public surely has a duty to report possible
wrongdoing by a sheriff or similar officer to the proper authorities and, if necessary,
to testify in the appropriate judicial and administrative disciplinary proceedings. But
to make the individual members of the general community insurers of the honest
performance of duty of a sheriff, or other officer of the court, over whom they have no
control, is not only deeply unfair to the former. It is also a confession of
comprehensive failure and comes too close to an abdication of duty on the part of
the Court itself. This Court should have no part in that.

2. I also feel compelled to comment on the majority opinion written by Gutierrez, J.

with all his customary and special way with words. My learned and eloquent brother
in the Court apparently accepts the proposition that payment by a judgment debtor of
cash to a sheriff produces the legal effects of payment, the sheriff being authorized
to accept such payment. Thus, in page 10 of his ponencia, Gutierrez, J. writes:

The receipt of money due on a judgment by an officer authorized by law to accept it

will satisfy the debt. (Citations omitted)

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 would be valid payment to extinguish the judgment debt.

Shortly thereafter, however, Gutierrez, J. backs off from the above position and
strongly implies that payment in cash to the sheriff is sheer imprudence on the part
of the judgment debtor and that therefore, should the sheriff abscond with the cash,
the judgment debtor has not validly discharged the judgment debt:
 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?

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....

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. ... (Emphasis in the
original) (Majority opinion, pp. 12-13)

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 creditor's 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
1

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 sheriffs.

It seems to me that the majority opinion's real premise is the unspoken one that the
judgment debtor should bear the risk of the fragility of the sheriff s virtue until the money or
property parted with by the judgment debtor actually reaches the hands of the judgment
creditor. This brings me back to my earlier point that risk is most appropriately borne not by
the judgment debtor, nor indeed by the judgment creditor, but by the State itself. The Court
requires all sheriffs to post good and adequate fidelity bonds before entering upon the
performance of their duties and, presumably, to maintain such bonds in force and effect
throughout their stay in office. The judgment creditor, in circumstances like those of the
2

instant case, could be allowed to execute upon the absconding sheriff s bond. 3

I believe the Petition should be granted and I vote accordingly.

PADILLA, J., Dissenting Opinion

From the facts that appear to be undisputed, I reach a conclusion different from that of the
majority. Sheriff Emilio Z. Reyes, the trial court's authorized sheriff, armed with a writ of
execution to enforce a final money judgment against the petitioner Philippine Airlines (PAL)
in favor of private respondent Amelia Tan, proceeded to petitioner PAL's office to implement
the writ.

There is no question that Sheriff Reyes, in enforcing the writ of execution, was acting with
full authority as an officer of the law and not in his personal capacity. Stated differently, PAL
had every right to assume that, as an officer of the law, Sheriff Reyes would perform his
duties as enjoined by law. It would be grossly unfair to now charge PAL with advanced or
constructive notice that Mr. Reyes would abscond and not deliver to the judgment creditor
the proceeds of the writ of execution. If a judgment debtor cannot rely on and trust an officer
of the law, as the Sheriff, whom else can he trust?

Pursued to its logical extreme, if PAL had delivered to Sheriff Reyes the amount of the
judgment in CASH, i.e. Philippine currency, with the corresponding receipt signed by Sheriff
Reyes, this would have been payment by PAL in full legal contemplation, because under
Article 1240 of the Civil Code, "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." And said payment if made by PAL in cash, i.e., Philippine currency, to Sheriff
Reyes would have satisfied PAL's judgment obligation, as payment is a legally recognized
mode for extinguishing one's obligation. (Article 1231, Civil Code).

Under Sec. 15, Rule 39, Rules of Court which provides that-

Sec. 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 there
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. ... .(emphasis
supplied)

it would be the duty of Sheriff Reyes to pay to the judgment creditor the proceeds of the
execution i.e., the cash received from PAL (under the above assumption). But, 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.

Did the situation change by PAL's 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 PAL'S obligation
under the executed judgment.

If the PAL cheeks 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 Reyes giving 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 PAL's 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. As held:

Payment of a judgment, to operate as a release or satisfaction, even pro tanto must

be made to the plaintiff or to some person authorized by him, or by law, to receive it.
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 (Henderson v.
Planters' and Merchants Bank, 59 SO 493, 178 Ala. 420).

Payment of an execution satisfies it without regard to whether the officer pays it over
to the creditor or misapplies it (340, 33 C.J.S. 644, citing Elliot v. Higgins, 83 N.C.
459). If defendant consents to the Sheriff s misapplication of the money, however,
defendant is estopped to claim that the debt is satisfied (340, 33 C.J.S. 644, citing
Heptinstall v. Medlin 83 N.C. 16).
The above rulings find even more cogent application in the case at bar because, as
contended by petitioner PAL (not denied by private respondent), when Sheriff Reyes served
the writ of execution on PAL, he (Reyes) was accompanied by private respondent's counsel.
Prudence dictated that when PAL delivered to Sheriff Reyes the two (2) questioned checks
(payable to Sheriff Reyes), private respondent's counsel should have insisted on their
immediate encashment by the Sheriff with the drawee bank in order to promptly get hold of
the amount belonging to his client, the judgment creditor.

ACCORDINGLY, I vote to grant the petition and to quash the court a quo's alias writ of
execution.

Philippine Airlines, Inc. vs Court of Appeals, 181 SCRA 557, GR No. 49188,
January 30, 1990, digested
(Civil Procedure – Alias Writ of Execution; Civil Law – Payment; Commercial Law –
Check)

THE FACTS:

Amelia Tan commenced a complaint for damages before the Court of First Instance
against Philippine Airlines, Inc. (PAL). The Court rendered a judgment in favor of the
former and against the latter.

PAL filed its appeal with the Court of Appeals (CA), and the appellate court affirmed
the judgment of the lower court with the modification that PAL is condemned to pay
the latter the sum of P25, 000.00 as damages and P5, 000.00 as attorney’s fee.

Judgment became final and executory and was correspondingly entered in the case,
which was remanded to the trial court for execution. The trial court upon the motion
of Amelia Tan issued an order of execution with the corresponding writ in favor of the
respondent. Said writ was duly referred to Deputy Sheriff Reyes for enforcement.

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 CA, remained unsatisfied. PAL opposed the motion, stating that it
had already fully paid its obligation to plaintiff through the issuance of checks
payable to the deputy sheriff who later did not appear with his return and instead
absconded.

The CA denied the issuance of the alias writ for being premature. After two months
the CA granted her an alias writ of execution for the full satisfaction of the judgment
rendered, when she filed another motion. Deputy Sheriff del Rosario is appointed
special sheriff for enforcement thereof.

PAL 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 Reyes and that judgment debt had
already been fully satisfied by the former as evidenced by the cash vouchers signed
and received by the executing sheriff.
Deputy Sheriff del Rosario served a notice of garnishment on the depository bank of
PAL, through its manager and garnished the latter’s deposit. Hence, PAL brought the
case to the Supreme Court and filed a petition for certiorari.

THE ISSUES:

WON an alias writ of execution can be issued without prior return of the original writ
by the implementing officer.

WON payment of judgment to the implementing officer as directed in the writ of

execution constitutes satisfaction of judgment.

WON payment made in checks to the sheriff and under his name is a valid payment to
extinguish judgment of debt.

THE RULING:

1. Affirmative. 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. A judgment cannot be rendered nugatory by unreasonable application of a
strict rule of procedure. Vested right were never intended to rest on the requirement
of a return. So long as judgment is not satisfied, a plaintiff is entitled to other writs
of execution.

2. Negative. 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 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 in the case at bar, to
the sheriff should be valid payment to extinguish judgment of debt.

However, 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.

3. Negative. 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”.

Unless authorized to do so by law or by consent of the obligee, a public officer has no

authority to accept anything other than money in payment of an obligation under a
judgment being executed. Strictly speaking, the acceptance by the sheriff of the
petitioner’s checks does not, per se, operate as a discharge of the judgment of debt.

A check, whether manager’s check or ordinary check, is not legal tender, and an
offer of a check in payment of a debt is not a valid tender or payment and may be
refused receipt by the oblige or creditor. Hence, the obligation is not extinguished.

THE TWIST: Payment in cash is logical, but it was not proper.

Payment in cash to the implementing officer may be deemed absolute payment of

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 the executing officers. Payment in cash would result in damage or endless
litigations each time a sheriff with huge amounts of cash in his hands decides to
abscond.

As a protective measure, the courts encourage the practice of payment of check

provided adequate controls are instituted to prevent wrongful payment and illegal
withdrawal or disbursement of funds.

However, in the case at bar, it is out of the ordinary that checks intended for a
particular payee are made out in the name of another. The issuance of the checks in
the name of the sheriff clearly made possible the misappropriation of the funds that
were withdrawn.

The Court of Appeals explained:

“Knowing as it does that the intended payment was for the respondent Amelia Tan,
the petitioner corporation, utilizing the services of its personnel who are or should be
knowledgeable about the accepted procedure 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 benefit. For the prejudice that
resulted, the petitioner himself must bear the fault…”

Having failed to employ the proper safeguards to protect itself, the judgment debtor
whose act made possible the loss had but itself to blame.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 88866 February 18, 1991

METROPOLITAN BANK & TRUST COMPANY, petitioner,

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

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

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

CRUZ, J.:

This case, for all its seeming complexity, turns on a simple question of negligence. The
facts, pruned of all non-essentials, are easily told.
The Metropolitan Bank and Trust Co. is a commercial bank with branches throughout the
Philippines and even abroad. Golden Savings and Loan Association was, at the time these
events happened, operating in Calapan, Mindoro, with the other private respondents as its
principal officers.

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

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

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

The first withdrawal was made on July 9, 1979, in the amount of P508,000.00, the second
on July 13, 1979, in the amount of P310,000.00, and the third on July 16, 1979, in the
amount of P150,000.00. The total withdrawal was P968.000.00. 4

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

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

The demand was rejected. Metrobank then sued Golden Savings in the Regional Trial Court
of Mindoro. After trial, judgment was rendered in favor of Golden Savings, which, however,
5

filed a motion for reconsideration even as Metrobank filed its notice of appeal. On
November 4, 1986, the lower court modified its decision thus:

ACCORDINGLY, judgment is hereby rendered:

1. Dismissing the complaint with costs against the plaintiff;

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

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

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

SO ORDERED.

On appeal to the respondent court, the decision was affirmed, prompting Metrobank to file
6

this petition for review on the following grounds:

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

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

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

2. Under the lower court's decision, affirmed by respondent Court of Appeals,

Metrobank is made to pay for warrants already dishonored, thereby perpetuating the
fraud committed by Eduardo Gomez.

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

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

The petition has no merit.

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

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

gave the go-signal that Gomez was finally allowed by Golden Savings to withdraw them
from his own account.

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

By contrast, Metrobank exhibited extraordinary carelessness. The amount involved was not
trifling — more than one and a half million pesos (and this was 1979). There was no reason
why it should not have waited until the treasury warrants had been cleared; it would not
have lost a single centavo by waiting. Yet, despite the lack of such clearance — and
notwithstanding that it had not received a single centavo from the proceeds of the treasury
warrants, as it now repeatedly stresses — it allowed Golden Savings to withdraw — not
once, not twice, but thrice — from the uncleared treasury warrants in the total amount of
P968,000.00

Its reason? It was "exasperated" over the persistent inquiries of Gloria Castillo about the
clearance and it also wanted to "accommodate" a valued client. It "presumed" that the
warrants had been cleared simply because of "the lapse of one week." For a bank with its
8

long experience, this explanation is unbelievably naive.

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

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

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

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

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

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

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

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

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

to disturb. And as we said in MWSS v. Court of Appeals: 10

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

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

The following sections of the Negotiable Instruments Law, especially the underscored parts,
are pertinent:

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

conform to the following requirements:

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

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

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

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

(e) Where the instrument is addressed to a drawee, he must be named or otherwise

indicated therein with reasonable certainty.

xxx xxx xxx

Sec. 3. When promise is unconditional. — An unqualified order or promise to pay is

unconditional within the meaning of this Act though coupled with —

(a) An indication of a particular fund out of which reimbursement is to be made or a

particular account to be debited with the amount; or

(b) A statement of the transaction which gives rise to the instrument judgment.
 But an order or promise to pay out of a particular fund is not unconditional.

The indication of Fund 501 as the source of the payment to be made on the treasury
warrants makes the order or promise to pay "not unconditional" and the warrants
themselves non-negotiable. There should be no question that the exception on Section 3 of
the Negotiable Instruments Law is applicable in the case at bar. This conclusion conforms to
Abubakar vs. Auditor General where the Court held:
11

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

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

The petitioner lays heavy stress on Jai Alai Corporation v. Bank of the Philippine
Islands, but we feel this case is inapplicable to the present controversy. That case
12
1âwphi1

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.
Metropolitan Bank & Trust Company vs. Court of Appeals
G.R. No. 88866 February, 18, 1991
Cruz, J.:

Facts:
Eduardo Gomez opened an account with Golden Savings and deposited 38 treasury
warrants. All warrants were subsequently indorsed by Gloria Castillo as Cashier of Golden
Savings and deposited to its Savings account in Metrobank branch in Calapan, Mindoro. They
were sent for clearance. Meanwhile, Gomez is not allowed to withdraw from his account, later,
however, “exasperated” over Floria repeated inquiries and also as an accommodation for a
“valued” client Metrobank decided to allow Golden Savings to withdraw from proceeds of the
warrants. In turn, Golden Savings subsequently allowed Gomez to make withdrawals from his
own account. Metrobank informed Golden Savings that 32 of the warrants had been dishonored
by the Bureau of Treasury 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.

Issue:
1. Whether or not Metrobank can demand refund agaist Golden Savings with regard to the
amount withdraws to make up with the deficit as a result of the dishonored treasury warrants.
2. Whether or not treasury warrants are negotiable instruments

Held:
No. Metrobank is 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.
Without such assurance, Golden Savings would not have allowed the withdrawals. Indeed,
Golden Savings might even have incurred liability for its refusal to return the money that all
appearances belonged to the depositor, who could therefore withdraw it anytime 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.
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 Sec. 66 of
NIL. The simple reason that NIL is not applicable to non negotiable instruments, treasury
warrants.

No. The treasury warrants are not negotiable instruments. Clearly stamped on their face is
the word: non negotiable.” Moreover, and this is equal significance, it is indicated that they are
payable from a particular fund, to wit, Fund 501. An instrument to be negotiable instrument must
contain an unconditional promise or orders to pay a sum certain in money. As provided by Sec 3
of NIL an unqualified order or promise to pay is unconditional though coupled with: 1 st, 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 2 nd, a statement of the transaction which give rise to the
instrument. But an order to promise to pay out of 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 conditional” and the warrants themselves non-negotiable. There
should be no question that the exception on Section 3 of NIL is applicable in the case at bar.

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 97753 August 10, 1992

CALTEX (PHILIPPINES), INC., petitioner,

vs.
COURT OF APPEALS and SECURITY BANK AND TRUST COMPANY, respondents.

Bito, Lozada, Ortega & Castillo for petitioners.

Nepomuceno, Hofileña & Guingona for private.

REGALADO, J.:

This petition for review on certiorari impugns and seeks the reversal of the decision
promulgated by respondent court on March 8, 1991 in CA-G.R. CV No. 23615 affirming 1

with modifications, the earlier decision of the Regional Trial Court of Manila, Branch
XLII, which dismissed the complaint filed therein by herein petitioner against respondent
2

bank.

The undisputed background of this case, as found by the court a quo and adopted by
respondent court, appears of record:

1. On various dates, defendant, a commercial banking institution, through its

Sucat Branch issued 280 certificates of time deposit (CTDs) in favor of one
Angel dela Cruz who deposited with herein defendant the aggregate amount
of P1,120,000.00, as follows: (Joint Partial Stipulation of Facts and Statement
of Issues, Original Records, p. 207; Defendant's Exhibits 1 to 280);

CTD CTD
Dates Serial Nos. Quantity Amount

22 Feb. 82 90101 to 90120 20 P80,000

26 Feb. 82 74602 to 74691 90 360,000
2 Mar. 82 74701 to 74740 40 160,000
4 Mar. 82 90127 to 90146 20 80,000
5 Mar. 82 74797 to 94800 4 16,000
5 Mar. 82 89965 to 89986 22 88,000
5 Mar. 82 70147 to 90150 4 16,000
8 Mar. 82 90001 to 90020 20 80,000
9 Mar. 82 90023 to 90050 28 112,000
9 Mar. 82 89991 to 90000 10 40,000
9 Mar. 82 90251 to 90272 22 88,000
——— ————
Total 280 P1,120,000
===== ========

2. Angel dela Cruz delivered the said certificates of time (CTDs) to herein
plaintiff in connection with his purchased of fuel products from the latter
(Original Record, p. 208).

3. Sometime in March 1982, Angel dela Cruz informed Mr. Timoteo Tiangco,
the Sucat Branch Manger, that he lost all the certificates of time deposit in
dispute. Mr. Tiangco advised said depositor to execute and submit a
notarized Affidavit of Loss, as required by defendant bank's procedure, if he
desired replacement of said lost CTDs (TSN, February 9, 1987, pp. 48-50).

4. On March 18, 1982, Angel dela Cruz executed and delivered to defendant
bank the required Affidavit of Loss (Defendant's Exhibit 281). On the basis of
said affidavit of loss, 280 replacement CTDs were issued in favor of said
depositor (Defendant's Exhibits 282-561).

5. On March 25, 1982, Angel dela Cruz negotiated and obtained a loan from
defendant bank in the amount of Eight Hundred Seventy Five Thousand
Pesos (P875,000.00). On the same date, said depositor executed a notarized
Deed of Assignment of Time Deposit (Exhibit 562) which stated, among
others, that he (de la Cruz) surrenders to defendant bank "full control of the
indicated time deposits from and after date" of the assignment and further
authorizes said bank to pre-terminate, set-off and "apply the said time
deposits to the payment of whatever amount or amounts may be due" on the
loan upon its maturity (TSN, February 9, 1987, pp. 60-62).

6. Sometime in November, 1982, Mr. Aranas, Credit Manager of plaintiff

Caltex (Phils.) Inc., went to the defendant bank's Sucat branch and presented
for verification the CTDs declared lost by Angel dela Cruz alleging that the
same were delivered to herein plaintiff "as security for purchases made with
 Caltex Philippines, Inc." by said depositor (TSN, February 9, 1987, pp. 54-
68).

7. On November 26, 1982, defendant received a letter (Defendant's Exhibit

563) from herein plaintiff formally informing it of its possession of the CTDs in
question and of its decision to pre-terminate the same.

8. On December 8, 1982, plaintiff was requested by herein defendant to

furnish the former "a copy of the document evidencing the guarantee
agreement with Mr. Angel dela Cruz" as well as "the details of Mr. Angel dela
Cruz" obligation against which plaintiff proposed to apply the time deposits
(Defendant's Exhibit 564).

9. No copy of the requested documents was furnished herein defendant.

10. Accordingly, defendant bank rejected the plaintiff's demand and claim for
payment of the value of the CTDs in a letter dated February 7, 1983
(Defendant's Exhibit 566).

11. In April 1983, the loan of Angel dela Cruz with the defendant bank
matured and fell due and on August 5, 1983, the latter set-off and applied the
time deposits in question to the payment of the matured loan (TSN, February
9, 1987, pp. 130-131).

12. In view of the foregoing, plaintiff filed the instant complaint, praying that
defendant bank be ordered to pay it the aggregate value of the certificates of
time deposit of P1,120,000.00 plus accrued interest and compounded interest
therein at 16% per annum, moral and exemplary damages as well as
attorney's fees.

After trial, the court a quo rendered its decision dismissing the instant
complaint. 3

On appeal, as earlier stated, respondent court affirmed the lower court's dismissal of the
complaint, hence this petition wherein petitioner faults respondent court in ruling (1) that the
subject certificates of deposit are non-negotiable despite being clearly negotiable
instruments; (2) that petitioner did not become a holder in due course of the said certificates
of deposit; and (3) in disregarding the pertinent provisions of the Code of Commerce
relating to lost instruments payable to bearer. 4

The instant petition is bereft of merit.

A sample text of the certificates of time deposit is reproduced below to provide a better
understanding of the issues involved in this recourse.

SECURITY BANK
AND TRUST COMPANY
6778 Ayala Ave., Makati No. 90101
Metro Manila, Philippines
SUCAT OFFICEP 4,000.00
CERTIFICATE OF DEPOSIT
Rate 16%

Date of Maturity FEB. 23, 1984 FEB 22, 1982, 19____

This is to Certify that B E A R E R has deposited in this Bank

the sum of PESOS: FOUR THOUSAND ONLY, SECURITY
BANK SUCAT OFFICE P4,000 & 00 CTS Pesos, Philippine
Currency, repayable to said depositor 731 days. after date,
 upon presentation and surrender of this certificate, with interest
at the rate of 16% per cent per annum.

(Sgd. Illegible) (Sgd. Illegible)

—————————— ———————————

AUTHORIZED SIGNATURES 5

Respondent court ruled that the CTDs in question are non-negotiable instruments,
nationalizing as follows:

. . . While it may be true that the word "bearer" appears rather boldly in the
CTDs issued, it is important to note that after the word "BEARER" stamped
on the space provided supposedly for the name of the depositor, the words
"has deposited" a certain amount follows. The document further provides that
the amount deposited shall be "repayable to said depositor" on the period
indicated. Therefore, the text of the instrument(s) themselves manifest with
clarity that they are payable, not to whoever purports to be the "bearer" but
only to the specified person indicated therein, the depositor. In effect, the
appellee bank acknowledges its depositor Angel dela Cruz as the person who
made the deposit and further engages itself to pay said depositor the amount
indicated thereon at the stipulated date. 6

We disagree with these findings and conclusions, and hereby hold that the CTDs in
question are negotiable instruments. Section 1 Act No. 2031, otherwise known as the
Negotiable Instruments Law, enumerates the requisites for an instrument to become
negotiable, viz:

(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.

The CTDs in question undoubtedly meet the requirements of the law for negotiability. The
parties' bone of contention is with regard to requisite (d) set forth above. It is noted that Mr.
Timoteo P. Tiangco, Security Bank's Branch Manager way back in 1982, testified in open
court that the depositor reffered to in the CTDs is no other than Mr. Angel de la Cruz.

xxx xxx xxx

Atty. Calida:

q In other words Mr. Witness, you are saying that per books of
the bank, the depositor referred (sic) in these certificates states
that it was Angel dela Cruz?

witness:

a Yes, your Honor, and we have the record to show that Angel
dela Cruz was the one who cause (sic) the amount.
 Atty. Calida:

q And no other person or entity or company, Mr. Witness?

witness:

a None, your Honor. 7

xxx xxx xxx

Atty. Calida:

q Mr. Witness, who is the depositor identified in all of these

certificates of time deposit insofar as the bank is concerned?

witness:

a Angel dela Cruz is the depositor. 8

xxx xxx xxx

On this score, 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
9

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
10

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. 11

Contrary to what respondent court held, the CTDs are negotiable instruments. The
documents provide that the amounts deposited shall be repayable to the depositor. And
who, according to the document, is the depositor? It is the "bearer." The documents do not
say that the depositor is Angel de la Cruz and that the amounts deposited are repayable
specifically to him. Rather, the amounts are to be repayable to the bearer of the documents
or, for that matter, whosoever may be the bearer at the time of presentment.

If it was really the intention of respondent bank to pay the amount to Angel de la Cruz only,
it could have with facility so expressed that fact in clear and categorical terms in the
documents, instead of having the word "BEARER" stamped on the space provided for the
name of the depositor in each CTD. On the wordings of the documents, therefore, the
amounts deposited are repayable to whoever may be the bearer thereof. Thus, petitioner's
aforesaid witness merely declared that Angel de la Cruz is the depositor "insofar as the
bank is concerned," but obviously other parties not privy to the transaction between them
would not be in a position to know that the depositor is not the bearer stated in the CTDs.
Hence, the situation would require any party dealing with the CTDs to go behind the plain
import of what is written thereon to unravel the agreement of the parties thereto through
facts aliunde. This need for resort to extrinsic evidence is what is sought to be avoided by
the Negotiable Instruments Law and calls for the application of the elementary rule that the
interpretation of obscure words or stipulations in a contract shall not favor the party who
caused the obscurity. 12

The next query is whether petitioner can rightfully recover on the CTDs. This time, the
answer is in the negative. The records reveal that Angel de la Cruz, whom petitioner chose
not to implead in this suit for reasons of its own, delivered the CTDs amounting to
P1,120,000.00 to petitioner without informing respondent bank thereof at any time.
Unfortunately for petitioner, although the CTDs are bearer instruments, a valid negotiation
thereof for the true purpose and agreement between it and De la Cruz, as ultimately
ascertained, requires both delivery and indorsement. For, although petitioner seeks to
deflect this fact, the CTDs were in reality delivered to it as a security for De la Cruz'
purchases of its fuel products. Any doubt as to whether the CTDs were delivered as
payment for the fuel products or as a security has been dissipated and resolved in favor of
the latter by petitioner's own authorized and responsible representative himself.

In a letter dated November 26, 1982 addressed to respondent Security Bank, J.Q. Aranas,
Jr., Caltex Credit Manager, wrote: ". . . These certificates of deposit were negotiated to us
by Mr. Angel dela Cruz to guarantee his purchases of fuel products" (Emphasis ours.) This
13

admission is conclusive upon petitioner, its protestations notwithstanding. Under the

doctrine of estoppel, an admission or representation is rendered conclusive upon the
person making it, and cannot be denied or disproved as against the person relying
thereon. A party may not go back on his own acts and representations to the prejudice of
14

the other party who relied upon them. In the law of evidence, whenever a party has, by his
15

own declaration, act, or omission, intentionally and deliberately led another to believe a
particular thing true, and to act upon such belief, he cannot, in any litigation arising out of
such declaration, act, or omission, be permitted to falsify it.
16

If it were true that the CTDs were delivered as payment and not as security, petitioner's
credit manager could have easily said so, instead of using the words "to guarantee" in the
letter aforequoted. Besides, when respondent bank, as defendant in the court below, moved
for a bill of particularity therein praying, among others, that petitioner, as plaintiff, be
17

required to aver with sufficient definiteness or particularity (a) the due date or dates
of payment of the alleged indebtedness of Angel de la Cruz to plaintiff and (b) whether or
not it issued a receipt showing that the CTDs were delivered to it by De la Cruz
as payment of the latter's alleged indebtedness to it, plaintiff corporation opposed the
motion. Had it produced the receipt prayed for, it could have proved, if such truly was the
18

fact, that the CTDs were delivered as payment and not as security. Having opposed the
motion, petitioner now labors under the presumption that evidence willfully suppressed
would be adverse if produced. 19

Under the foregoing circumstances, this disquisition in Intergrated Realty Corporation, et al.
vs. Philippine National Bank, et al. is apropos:
20

. . . Adverting again to the Court's pronouncements in Lopez, supra, we quote

therefrom:

The character of the transaction between the parties is to be

determined by their intention, regardless of what language was
used or what the form of the transfer was. If it was intended to
secure the payment of money, it must be construed as a
pledge; but if there was some other intention, it is not a pledge.
However, even though a transfer, if regarded by itself, appears
to have been absolute, its object and character might still be
qualified and explained by contemporaneous writing declaring it
to have been a deposit of the property as collateral security. It
has been said that a transfer of property by the debtor to a
creditor, even if sufficient on its face to make an absolute
conveyance, should be treated as a pledge if the debt
continues in inexistence and is not discharged by the transfer,
and that accordingly the use of the terms ordinarily importing
conveyance of absolute ownership will not be given that effect
in such a transaction if they are also commonly used in pledges
and mortgages and therefore do not unqualifiedly indicate a
transfer of absolute ownership, in the absence of clear and
unambiguous language or other circumstances excluding an
intent to pledge.
Petitioner's insistence that the CTDs were negotiated to it begs the question. Under the
Negotiable Instruments Law, an instrument is negotiated when it is transferred from one
person to another in such a manner as to constitute the transferee the holder thereof, and21

a holder may be the payee or indorsee of a bill or note, who is in possession of it, or the
bearer thereof. In the present case, however, there was no negotiation in the sense of a
22

transfer of the legal title to the CTDs in favor of petitioner in which situation, for obvious
reasons, mere delivery of the bearer CTDs would have sufficed. Here, the delivery thereof
only as security for the purchases of Angel de la Cruz (and we even disregard the fact that
the amount involved was not disclosed) could at the most constitute petitioner only as a
holder for value by reason of his lien. Accordingly, a negotiation for such purpose cannot be
effected by mere delivery of the instrument since, necessarily, the terms thereof and the
subsequent disposition of such security, in the event of non-payment of the principal
obligation, must be contractually provided for.

The pertinent law on this point is that where the holder has a lien on the instrument arising
from contract, he is deemed a holder for value to the extent of his lien. As such holder of
23

collateral security, he would be a pledgee but the requirements therefor and the effects
thereof, not being provided for by the Negotiable Instruments Law, shall be governed by the
Civil Code provisions on pledge of incorporeal rights, which inceptively provide:
24

Art. 2095. Incorporeal rights, evidenced by negotiable instruments, . . . may

also be pledged. The instrument proving the right pledged shall be delivered
to the creditor, and if negotiable, must be indorsed.

Art. 2096. A pledge shall not take effect against third persons if a description
of the thing pledged and the date of the pledge do not appear in a public
instrument.

Aside from the fact that the CTDs were only delivered but not indorsed, the factual findings
of respondent court quoted at the start of this opinion show that petitioner failed to produce
any document evidencing any contract of pledge or guarantee agreement between it and
Angel de la Cruz. Consequently, the mere delivery of the CTDs did not legally vest in
25

petitioner any right effective against and binding upon respondent bank. The requirement
under Article 2096 aforementioned is not a mere rule of adjective law prescribing the mode
whereby proof may be made of the date of a pledge contract, but a rule of substantive law
prescribing a condition without which the execution of a pledge contract cannot affect third
persons adversely. 26

On the other hand, the assignment of the CTDs made by Angel de la Cruz in favor of
respondent bank was embodied in a public instrument. With regard to this other mode of
27

transfer, the Civil Code specifically declares:

Art. 1625. An assignment of credit, right or action shall produce no effect as

against third persons, unless it appears in a public instrument, or the
instrument is recorded in the Registry of Property in case the assignment
involves real property.

Respondent bank duly complied with this statutory requirement. Contrarily, petitioner,
whether as purchaser, assignee or lien holder of the CTDs, neither proved the amount of its
credit or the extent of its lien nor the execution of any public instrument which could affect or
bind private respondent. Necessarily, therefore, as between petitioner and respondent bank,
the latter has definitely the better right over the CTDs in question.

Finally, petitioner faults respondent court for refusing to delve into the question of whether
or not private respondent observed the requirements of the law in the case of lost
negotiable instruments and the issuance of replacement certificates therefor, on the ground
that petitioner failed to raised that issue in the lower court. 28
On this matter, we uphold respondent court's finding that the aspect of alleged negligence
of private respondent was not included in the stipulation of the parties and in the statement
of issues submitted by them to the trial court. The issues agreed upon by them for
29

resolution in this case are:

1. Whether or not the CTDs as worded are negotiable instruments.

2. Whether or not defendant could legally apply the amount covered by the
CTDs against the depositor's loan by virtue of the assignment (Annex "C").

3. Whether or not there was legal compensation or set off involving the
amount covered by the CTDs and the depositor's outstanding account with
defendant, if any.

4. Whether or not plaintiff could compel defendant to preterminate the CTDs

before the maturity date provided therein.

5. Whether or not plaintiff is entitled to the proceeds of the CTDs.

6. Whether or not the parties can recover damages, attorney's fees and
litigation expenses from each other.

As respondent court correctly observed, with appropriate citation of some doctrinal

authorities, the foregoing enumeration does not include the issue of negligence on the part
of respondent bank. An issue raised for the first time on appeal and not raised timely in the
proceedings in the lower court is barred by estoppel. Questions raised on appeal must be
30

within the issues framed by the parties and, consequently, issues not raised in the trial court
cannot be raised for the first time on appeal. 31

Pre-trial is primarily intended to make certain that all issues necessary to the disposition of a
case are properly raised. Thus, to obviate the element of surprise, parties are expected to
disclose at a pre-trial conference all issues of law and fact which they intend to raise at the
trial, except such as may involve privileged or impeaching matters. The determination of
issues at a pre-trial conference bars the consideration of other questions on appeal. 32

To accept petitioner's suggestion that respondent bank's supposed negligence may be

considered encompassed by the issues on its right to preterminate and receive the
proceeds of the CTDs would be tantamount to saying that petitioner could raise on appeal
any issue. We agree with private respondent that the broad ultimate issue of petitioner's
entitlement to the proceeds of the questioned certificates can be premised on a multitude of
other legal reasons and causes of action, of which respondent bank's supposed negligence
is only one. Hence, petitioner's submission, if accepted, would render a pre-trial delimitation
of issues a useless exercise. 33

Still, even assuming arguendo that said issue of negligence was raised in the court below,
petitioner still cannot have the odds in its favor. A close scrutiny of the provisions of the
Code of Commerce laying down the rules to be followed in case of lost instruments payable
to bearer, which it invokes, will reveal that said provisions, even assuming their applicability
to the CTDs in the case at bar, are merely permissive and not mandatory. The very first
article cited by petitioner speaks for itself.

Art 548. The dispossessed owner, no matter for what cause it may
be, may apply to the judge or court of competent jurisdiction, asking that the
principal, interest or dividends due or about to become due, be not paid a
third person, as well as in order to prevent the ownership of the instrument
that a duplicate be issued him. (Emphasis ours.)

xxx xxx xxx

The use of the word "may" in said provision shows that it is not mandatory but discretionary
on the part of the "dispossessed owner" to apply to the judge or court of competent
jurisdiction for the issuance of a duplicate of the lost instrument. Where the provision reads
"may," this word shows that it is not mandatory but discretional. The word "may" is usually
34

permissive, not mandatory. It is an auxiliary verb indicating liberty, opportunity, permission

35

and possibility. 36

Moreover, as correctly analyzed by private respondent, Articles 548 to 558 of the Code of
37

Commerce, on which petitioner seeks to anchor respondent bank's supposed negligence,

merely established, on the one hand, a right of recourse in favor of a dispossessed owner
or holder of a bearer instrument so that he may obtain a duplicate of the same, and, on the
other, an option in favor of the party liable thereon who, for some valid ground, may elect to
refuse to issue a replacement of the instrument. Significantly, none of the provisions cited
by petitioner categorically restricts or prohibits the issuance a duplicate or replacement
instrument sans compliance with the procedure outlined therein, and none establishes a
mandatory precedent requirement therefor.

WHEREFORE, on the modified premises above set forth, the petition is DENIED and the
appealed decision is hereby AFFIRMED.

SO ORDERED.

Caltex (Philippines), Inc. vs

Court of Appeals
212 SCRA 448 – Mercantile Law – Negotiable Instruments Law – Negotiable Instruments in
General – Bearer Instrument – Certificate of Time Deposit

In 1982, Angel de la Cruz obtained certificates of time deposit (CTDs) from Security Bank
and Trust Company for the former’s deposit with the said bank amounting to P1,120,000.00.
The said CTDs are couched in the following manner:

This is to Certify that B E A R E R has deposited in this Bank the sum of _______ Pesos, Philippine
Currency, repayable to said depositor _____ days. after date, upon presentation and surrender of this
certificate, with interest at the rate of ___ % per cent per annum.

Angel de la Cruz subsequently delivered the CTDs to Caltex in connection with the
purchase of fuel products from Caltex.
In March 1982, Angel de la Cruz advised Security Bank that he lost the CTDs. He executed
an affidavit of loss and submitted it to the bank. The bank then issued another set of CTDs.
In the same month, Angel de la Cruz acquired a loan of P875,000.00 and he used his time
deposits as collateral.
In November 1982, a representative from Caltex went to Security Bank to present the CTDs
(delivered by de la Cruz) for verification. Caltex advised Security Bank that de la Cruz
delivered Caltex the CTDs as security for purchases he made with the latter. Security Bank
refused to accept the CTDs and instead required Caltex to present documents proving the
agreement made by de la Cruz with Caltex. Caltex however failed to produce said
documents.
In April 1983, de la Cruz’ loan with Security bank matured and no payment was made by de
la Cruz. Security Bank eventually set-off the time deposit to pay off the loan.
Caltex sued Security Bank to compel the bank to pay off the CTDs. Security Bank argued
that the CTDs are not negotiable instruments even though the word “bearer” is written on
their face because the word “bearer” contained therein refer to depositor and only the
depositor can encash the CTDs and no one else.

ISSUE: Whether or not the certificates of time deposit are negotiable.

HELD: Yes. The CTDs indicate that they are payable to the bearer; that there is an
implication that the depositor is the bearer but as to who the depositor is, no one knows. It
does not say on its face that the depositor is Angel de la Cruz. If it was really the intention of
respondent bank to pay the amount to Angel de la Cruz only, it could have with facility so
expressed that fact in clear and categorical terms in the documents, instead of having the
word “BEARER” stamped on the space provided for the name of the depositor in each CTD.
On the wordings of the documents, therefore, the amounts deposited are repayable to
whoever may be the bearer thereof.
Thus, de la Cruz is the depositor “insofar as the bank is concerned,” but obviously other
parties not privy to the transaction between them would not be in a position to know that the
depositor is not the bearer stated in the CTDs.
However, Caltex may not encash the CTDs because although the CTDs are bearer
instruments, a valid negotiation thereof for the true purpose and agreement between Caltex
and De la Cruz, requires both delivery and indorsement. As discerned from the testimony of
Caltex’ representative, the CTDs were delivered to them by de la Cruz merely for guarantee
or security and not as payment.