Republic of the Philippines the supply of 20,000 metric tons of Burmese
SUPREME COURT rice. As her bid of $203.00 per metric ton was
Manila
EN BANC
G.R. No. L-15645 January 31, 1964
PAZ P. ARRIETA and VITALIADO
ARRIETA, plaintiffs-appellees,
vs.
NATIONAL RICE AND CORN
CORPORATION, defendant-appellant,
MANILA UNDERWRITERS INSURANCE
CO., INC., defendant-appellee.
Teehankee and Carreon for plaintiffs-appellees.
The Government Corporate Counsel for
defendant-appellant.
Isidro A. Vera for defendant-appellee.
REGALA, J.:
This is an appeal of the defendant-appellant
NARIC from the decision of the trial court dated
February 20, 1958, awarding to the plaintiffs-
appellees the amount of $286,000.00 as damages
for breach of contract and dismissing the
counterclaim and third party complaint of the
defendant-appellant NARIC.
In accordance with Section 13 of Republic Act
No. 3452, "the National Rice and Corn
Administration (NARIC) is hereby abolished
and all its assets, liabilities, functions, powers
which are not inconsistent with the provisions of
this Act, and all personnel are transferred "to the
Rice and Corn Administration (RCA).
All references, therefore, to the NARIC in this
decision must accordingly be adjusted and read
as RCA pursuant to the aforementioned law.
On May 19, 1952, plaintiff-appellee participated
in the public bidding called by the NARIC for
the lowest, she was awarded the contract for the
same. Accordingly, on July 1, 1952, plaintiff-
appellee Paz P. Arrieta and the appellant
corporation entered into a Contract of Sale of
Rice, under the terms of which the former
obligated herself to deliver to the latter 20,000
metric tons of Burmess Rice at $203.00 per
metric ton, CIF Manila. In turn, the defendant
corporation committed itself to pay for the
imported rice "by means of an irrevocable,
confirmed and assignable letter of credit in U.S.
currency in favor of the plaintiff-appellee and/or
supplier in Burma, immediately." Despite the
commitment to pay immediately "by means of
an irrevocable, confirmed and assignable Letter
of Credit," however, it was only on July 30,
1952, or a full month from the execution of the
contract, that the defendant corporation, thru its
general manager, took the first to open a letter of
credit by forwarding to the Philippine National
Bank its Application for Commercial Letter
Credit. The application was accompanied by a
transmittal letter, the relevant paragraphs of
which read:
In view of the fact that we do not have sufficient
deposit with your institution with which to cover
the amount required to be deposited as a
condition for the opening of letters of credit, we
will appreciate it if this application could be
considered special case.
We understand that our supplier, Mrs. Paz P.
Arrieta, has a deadline to meet which is August
4, 1952, and in order to comply therewith, it is
imperative that the L/C be opened prior to that
date. We would therefore request your full
cooperation on this matter.
On the same day, July 30, 1952, Mrs. Paz P.
Arrieta thru counsel, advised the appellant
corporation of the extreme necessity for the
immediate opening of the letter credit since she
had by then made a tender to her supplier in
Rangoon, Burma, "equivalent to 5% of the
F.O.B. price of 20,000 tons at $180.70 and in
compliance with the regulations in Rangoon this
5% will be confiscated if the required letter of
credit is not received by them before August 4,
1952."
On August 4, 1952, the Philippine National
Bank informed the appellant corporation that its
application, "for a letter of credit for
$3,614,000.00 in favor of Thiri Setkya has been
approved by the Board of Directors with the
condition that marginal cash deposit be paid and
that drafts are to be paid upon presentment."
(Exh. J-pl.; Exh. 10-def., p. 19, Folder of
Exhibits). Furthermore, the Bank represented
that it "will hold your application in abeyance
pending compliance with the above stated
requirement."
As it turned out, however, the appellant
corporation not in any financial position to meet
the condition. As matter of fact, in a letter dated
August 2, 1952, the NARIC bluntly confessed to
the appellee its dilemma: "In this connection,
please be advised that our application for
opening of the letter of credit has been presented
to the bank since July 30th but the latter requires
that we first deposit 50% of the value of the
letter amounting to aproximately
$3,614,000.00 which we are not in a position to
meet." (Emphasis supplied. Exh. 9-Def.; Exh. 1-
Pe., p. 18, Folder of Exhibits)
Consequently, the credit instrument applied for
was opened only on September 8, 1952 "in favor
of Thiri Setkya, Rangoon, Burma, and/or
assignee for $3,614,000.00," (which is more
than two months from the execution of the
contract) the party named by the appellee as
beneficiary of the letter of credit.1wph1.t
As a result of the delay, the allocation of
appellee's supplier in Rangoon was cancelled
and the 5% deposit, amounting to 524,000 kyats
or approximately P200,000.00 was forfeited. In
this connection, it must be made of record that
although the Burmese authorities had set August
4, 1952, as the deadline for the remittance of the
required letter of credit, the cancellation of the
allocation and the confiscation of the 5% deposit
were not effected until August 20, 1952, or, a
full half month after the expiration of the
deadline. And yet, even with the 15-day grace,
appellant corporation was unable to make good
its commitment to open the disputed letter of
credit.
The appellee endeavored, but failed, to restore
the cancelled Burmese rice allocation. When the
futility of reinstating the same became apparent,
she offered to substitute Thailand rice instead to
the defendant NARIC, communicating at the
same time that the offer was "a solution which
should be beneficial to the NARIC and to us at
the same time." (Exh. X-Pe., Exh. 25Def., p.
38, Folder of Exhibits). This offer for
substitution, however, was rejected by the
appellant in a resolution dated November 15,
1952.
On the foregoing, the appellee sent a letter to the
appellant, demanding compensation for the
damages caused her in the sum of $286,000.00,
U.S. currency, representing unrealized profit.
The demand having been rejected she instituted
this case now on appeal.
At the instance of the NARIC, a counterclaim
was filed and the Manila Underwriters Insurance
Company was brought to the suit as a third party
defendant to hold it liable on the performance
bond it executed in favor of the plaintiff-
appellee.
We find for the appellee.
It is clear upon the records that the sole and
principal reason for the cancellation of the
allocation contracted by the appellee herein in
Rangoon, Burma, was the failure of the letter of
credit to be opened with the contemplated
period. This failure must, therefore, be taken as
the immediate cause for the consequent damage
which resulted. As it is then, the disposition of
this case depends on a determination of who was
responsible for such failure. Stated differently,
the issue is whether appellant's failure to open
immediately the letter of credit in dispute
amounted to a breach of the contract of July 1,
1952 for which it may be held liable in damages.
Appellant corporation disclaims responsibility
for the delay in the opening of the letter of
credit. On the contrary, it insists that the fault
lies with the appellee. Appellant contends that
the disputed negotiable instrument was not
promptly secured because the appellee , failed to
seasonably furnish data necessary and required
for opening the same, namely, "(1) the amount
of the letter of credit, (2) the person, company or
corporation in whose favor it is to be opened,
and (3) the place and bank where it may be
negotiated." Appellant would have this Court
believe, therefore, that had these informations
been forthwith furnished it, there would have
been no delay in securing the instrument.
Appellant's explanation has neither force nor
merit. In the first place, the explanation reaches
into an area of the proceedings into which We
are not at liberty to encroach. The explanation
refers to a question of fact. Nothing in the record
suggests any arbitrary or abusive conduct on the
part of the trial judge in the formulation of the
ruling. His conclusion on the matter is
sufficiently borne out by the evidence presented.
We are denied, therefore, the prerogative to
disturb that finding, consonant to the time-
honored tradition of this Tribunal to hold trial
judges better situated to make conclusions on
questions of fact. For the record, We quote
hereunder the lower court's ruling on the point:
The defense that the delay, if any in opening the
letter of credit was due to the failure of plaintiff
to name the supplier, the amount and the bank is
not tenable. Plaintiff stated in Court that these
facts were known to defendant even before the
contract was executed because these facts were
necessarily revealed to the defendant before she
could qualify as a bidder. She stated too that she
had given the necessary data immediately after
the execution of Exh. "A" (the contract of July 1,
1952) to Mr. GABRIEL BELMONTE, General
Manager of the NARIC, both orally and in
writing and that she also pressed for the opening
of the letter of credit on these occasions. These
statements have not been controverted and
defendant NARIC, notwithstanding its previous
intention to do so, failed to present Mr.
Belmonte to testify or refute this. ...
Secondly, from the correspondence and
communications which form part of the record
of this case, it is clear that what singularly
delayed the opening of the stipulated letter of
credit and which, in turn, caused the cancellation
of the allocation in Burma, was the inability of
the appellant corporation to meet the condition
importation by the Bank for granting the same.
We do not think the appellant corporation can
refute the fact that had it been able to put up the
50% marginal cash deposit demanded by the
bank, then the letter of credit would have been
approved, opened and released as early as
August 4, 1952. The letter of the Philippine
National Bank to the NARIC was plain and
explicit that as of the said date, appellant's
"application for a letter of credit ... has been
approved by the Board of Directors with the
condition that 50% marginal cash deposit be
paid and that drafts are to be paid upon
presentment." (Emphasis supplied)
The liability of the appellant, however, stems not
alone from this failure or inability to satisfy the
requirements of the bank. Its culpability arises
from its willful and deliberate assumption of
contractual obligations even as it was well aware
of its financial incapacity to undertake the
prestation. We base this judgment upon the letter
which accompanied the application filed by the
appellant with the bank, a part of which letter
was quoted earlier in this decision. In the said
accompanying correspondence, appellant
admitted and owned that it did "not have
sufficient deposit with your institution (the
PNB) with which to cover the amount required
to be deposited as a condition for the opening of
letters of credit. ... .
A number of logical inferences may be drawn
from the aforementioned admission. First, that
the appellant knew the bank requirements for
opening letters of credit; second, that appellant
also knew it could not meet those requirement.
When, therefore, despite this awareness that was
financially incompetent to open a letter of credit
immediately, appellant agreed in paragraph 8 of
the contract to pay immediately "by means of an
irrevocable, confirm and assignable letter of
credit," it must be similarly held to have bound
itself to answer for all and every consequences
that would result from the representation. aptly
observed by the trial court:
... Having called for bids for the importation of
rice involving millions, $4,260,000.00 to be
exact, it should have a certained its ability and
capacity to comply with the inevitably
requirements in cash to pay for such
importation. Having announced the bid, it must
be deemed to have impliedly assured suppliers
of its capacity and facility to finance the
importation within the required period,
especially since it had imposed the supplier the
90-day period within which the shipment of the
rice must be brought into the Philippines.
Having entered in the contract, it should have
taken steps immediately to arrange for the letter
of credit for the large amount involved and
inquired into the possibility of its issuance.
In relation to the aforequoted observation of the
trial court, We would like to make reference also
to Article 11 of the Civil Code which provides:
Those who in the performance of their
obligation are guilty of fraud, negligence, or
delay, and those who in any manner contravene
the tenor thereof, are liable in damages.
Under this provision, not only debtors guilty of
fraud, negligence or default in the performance
of obligations a decreed liable; in general, every
debtor who fails in performance of his
obligations is bound to indemnify for the losses
and damages caused thereby (De la Cruz
Seminary of Manila, 18 Phil. 330; Municipality
of Moncada v. Cajuigan, 21 Phil. 184; De la
Cavada v. Diaz, 37 Phil. 982; Maluenda & Co. v.
Enriquez, 46 Phil. 916; Pasumil v. Chong, 49
Phil. 1003; Pando v. Gimenez, 54 Phil. 459;
Acme Films v. Theaters Supply, 63 Phil. 657).
The phrase "any manner contravene the tenor"
of the obligation includes any illicit act which
impairs the strict and faithful fulfillment of the
obligation or every kind or defective
performance. (IV Tolentino, Civil Code of the
Philippines, citing authorities, p. 103.)
The NARIC would also have this Court hold
that the subsequent offer to substitute Thailand
rice for the originally contracted Burmese rice
amounted to a waiver by the appellee of
whatever rights she might have derived from the
breach of the contract. We disagree. Waivers are
not presumed, but must be clearly and
convincingly shown, either by express
stipulation or acts admitting no other reasonable
explanation. (Ramirez v. Court of Appeals, 52
O.G. 779.) In the case at bar, no such intent to
waive has been established.
We have carefully examined and studied the oral
and documentary evidence presented in this case
and upon which the lower court based its award.
Under the contract, the NARIC bound itself to
buy 20,000 metric tons of Burmese rice at
"$203.00 U.S. Dollars per metric ton, all net
shipped weight, and all in U.S. currency, C.I.F.
Manila ..." On the other hand, documentary and
other evidence establish with equal certainty that
the plaintiff-appellee was able to secure the
contracted commodity at the cost price of
$180.70 per metric ton from her supplier in
Burma. Considering freights, insurance and
charges incident to its shipment here and the
forfeiture of the 5% deposit, the award granted
by the lower court is fair and equitable. For a
clearer view of the equity of the damages
awarded, We reproduce below the testimony of
the appellee, adequately supported by the
evidence and record:
Q. Will you please tell the court, how much is
the damage you suffered?
A. Because the selling price of my rice is
$203.00 per metric ton, and the cost price of my
rice is $180.00 We had to pay also $6.25 for
shipping and about $164 for insurance. So
adding the cost of the rice, the freight, the
insurance, the total would be about $187.99 that
would be $15.01 gross profit per metric ton,
multiply by 20,000 equals $300,200, that is my
supposed profit if I went through the contract.
The above testimony of the plaintiff was a
general approximation of the actual figures
involved in the transaction. A precise and more
exact demonstration of the equity of the award
herein is provided by Exhibit HH of the plaintiff
and Exhibit 34 of the defendant, hereunder
quoted so far as germane.
It is equally of record now that as shown in her
request dated July 29, 1959, and other
communications subsequent thereto for the
opening by your corporation of the required
letter of credit, Mrs. Arrieta was supposed to pay
her supplier in Burma at the rate of One
Hundred Eighty Dollars and Seventy Cents
($180.70) in U.S. Currency, per ton plus Eight
Dollars ($8.00) in the same currency per ton for
shipping and other handling expenses, so that
she is already assured of a net profit of Fourteen
Dollars and Thirty Cents ($14.30), U.S.,
Currency, per ton or a total of Two Hundred and
Eighty Six Thousand Dollars ($286,000.00),
U.S. Currency, in the aforesaid transaction. ...
Lastly, herein appellant filed a counterclaim
asserting that it has suffered, likewise by way of
unrealized profit damages in the total sum of
$406,000.00 from the failure of the projected
contract to materialize. This counterclaim was
supported by a cost study made and submitted
by the appellant itself and wherein it was
illustrated how indeed had the importation
pushed thru, NARIC would have realized in
profit the amount asserted in the counterclaim.
And yet, the said amount of P406,000.00 was
realizable by appellant despite a number of
expenses which the appellee under the contract,
did not have to incur. Thus, under the cost study
submitted by the appellant, banking and
unloading charges were to be shouldered by it,
including an Import License Fee of 2% and
superintendence fee of $0.25 per metric ton. If
the NARIC stood to profit over P400 000.00
from the disputed transaction inspite of the extra
expenditures from which the herein appellee was
exempt, we are convicted of the fairness of the
judgment presently under appeal.
In the premises, however, a minor modification
must be effected in the dispositive portion of the
decision appeal from insofar as it expresses the
amount of damages in U.S. currency and not in
Philippine Peso. Republic Act 529 specifically
requires the discharge of obligations only "in
any coin or currency which at the time of
payment is legal tender for public and private
debts." In view of that law, therefore, the award
should be converted into and expressed in
Philippine Peso.
This brings us to a consideration of what rate of
exchange should apply in the conversion here
decreed. Should it be at the time of the breach, at
the time the obligation was incurred or at the
rate of exchange prevailing on the promulgation
of this decision.
In the case of Engel v. Velasco & Co., 47 Phil.
115, We ruled that in an action for recovery of
damages for breach of contract, even if the
obligation assumed by the defendant was to pay
the plaintiff a sum of money expressed in
American currency, the indemnity to be allowed
should be expressed in Philippine currency at
the rate of exchange at the time of the judgment
rather than at the rate of exchange prevailing on
the date of defendant's breach. This ruling,
however, can neither be applied nor extended to
the case at bar for the same was laid down when
there was no law against stipulating foreign
currencies in Philippine contracts. But now we
have Republic Act No. 529 which expressly
declares such stipulations as contrary to public
policy, void and of no effect. And, as We already
pronounced in the case of Eastboard
Navigation, Ltd. v. Juan Ysmael & Co., Inc.,
G.R. No. L-9090, September 10, 1957, if there is
any agreement to pay an obligation in a currency
other than Philippine legal tender, the same is
null and void as contrary to public policy
(Republic Act 529), and the most that could be
demanded is to pay said obligation in Philippine
currency "to be measured in the prevailing rate
of exchange at the time the obligation was
incurred (Sec. 1, idem)."
UPON ALL THE FOREGOING, the decision
appealed from is hereby affirmed, with the sole
modification that the award should be converted
into the Philippine peso at the rate of exchange
prevailing at the time the obligation was
incurred or on July 1, 1952 when the contract
was executed. The appellee insurance company,
in the light of this judgment, is relieved of any
liability under this suit. No pronouncement as to
costs.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-27782 July 31, 1970
OCTAVIO A. KALALO, plaintiff-appellee,
vs.
ALFREDO J. LUZ, defendant-appellant.
Amelia K. del Rosario for plaintiff-appellee.
Pelaez, Jalandoni & Jamir for defendant-
appellant.
ZALDIVAR, J.:
Appeal from the decision, dated, February 10,
1967, of the Court of First Instance of Rizal
(Branch V, Quezon City) in its Civil Case No.
Q-6561.
On November 17, 1959, plaintiff-appellee
Octavio A. Kalalo hereinafter referred to
as appellee), a licensed civil engineer doing
business under the firm name of O. A. Kalalo
and Associates, entered into an agreement
(Exhibit A ) 1 with defendant-appellant Alfredo
J . Luz (hereinafter referred to as appellant), a
licensed architect, doing business under firm
name of A. J. Luz and Associates, whereby the
former was to render engineering design
services to the latter for fees, as stipulated in the
agreement. The services included design
computation and sketches, contract drawing and
technical specifications of all engineering phases
of the project designed by O. A. Kalalo and
Associates bill of quantities and cost estimate,
and consultation and advice during construction
relative to the work. The fees agreed upon were
percentages of the architect's fee, to wit:
structural engineering, 12-%; electrical
engineering, 2-%. The agreement was
subsequently supplemented by a "clarification to
letter-proposal" which provided, among other
things, that "the schedule of engineering fees in
this agreement does not cover the following: ...
D. Foundation soil exploration, testing and
evaluation; E. Projects that are principally
engineering works such as industrial plants, ..."
and "O. A. Kalalo and Associates reserve the
right to increase fees on projects ,which cost less
than P100,000 ...." 2 Pursuant to said agreement,
appellee rendered engineering services to
appellant in the following projects:
(a) Fil-American Life Insurance Building at
Legaspi City;
(b) Fil-American Life Insurance Building at
Iloilo City;
(c) General Milling Corporation Flour Mill at
Opon Cebu;
(d) Menzi Building at Ayala Blvd., Makati,
Rizal;
(e) International Rice Research Institute,
Research center Los Baos, Laguna;
(f) Aurelia's Building at Mabini, Ermita, Manila;
(g) Far East Bank's Office at Fil-American Life
Insurance Building at Isaac Peral Ermita,
Manila;
(h) Arthur Young's residence at Forbes Park,
Makati, Rizal;
(i) L & S Building at Dewey Blvd., Manila; and
(j) Stanvac Refinery Service Building at Limay,
Bataan.
On December 1 1, '1961, appellee sent to
appellant a statement of account (Exhibit
"1"), 3 to which was attached an itemized
statement of defendant-appellant's account (Exh.
"1-A"), according to which the total engineering
fee asked by appellee for services rendered
amounted to P116,565.00 from which sum was
to be deducted the previous payments made in
the amount of P57,000.00, thus leaving a
balance due in the amount of P59,565.00.
On May 18, 1962 appellant sent appellee a
resume of fees due to the latter. Said fees,
according to appellant. amounted to P10,861.08
instead of the amount claimed by the appellee.
On June 14, 1962 appellant sent appellee a
check for said amount, which appellee refused to
accept as full payment of the balance of the fees
due him.
On August 10, 1962, appellee filed a complaint
against appellant, containing four causes of
action. In the first cause of action, appellee
alleged that for services rendered in connection
with the different projects therein mentioned
there was due him fees in sum s consisting of
$28,000 (U.S.) and P100,204.46, excluding
interests, of which sums only P69,323.21 had
been paid, thus leaving unpaid the $28,000.00
and the balance of P30,881.25. In the second
cause of action, appellee claimed P17,000.00 as
consequential and moral damages; in the third
cause of action claimed P55,000.00 as moral
damages, attorney's fees and expenses of
litigation; and in the fourth cause of action he
claimed P25,000.00 as actual damages, and also
for attorney's fees and expenses of litigation.
In his answer, appellant admitted that appellee
rendered engineering services, as alleged in the
first cause of action, but averred that some of
appellee's services were not in accordance with
the agreement and appellee's claims were not
justified by the services actually rendered, and
that the aggregate amount actually due to
appellee was only P80,336.29, of which
P69,475.21 had already been paid, thus leaving a
balance of only P10,861.08. Appellant denied
liability for any damage claimed by appellee to
have suffered, as alleged in the second, third and
fourth causes of action. Appellant also set up
affirmative and special defenses, alleging that
appellee had no cause of action, that appellee
was in estoppel because of certain acts,
representations, admissions and/or silence,
which led appellant to believe certain facts to
exist and to act upon said facts, that appellee's
claim regarding the Menzi project was
premature because appellant had not yet been
paid for said project, and that appellee's services
were not complete or were performed in
violation of the agreement and/or otherwise
unsatisfactory. Appellant also set up a
counterclaim for actual and moral damages for
such amount as the court may deem fair to
assess, and for attorney's fees of P10,000.00.
Inasmuch as the pleadings showed that the
appellee's right to certain fees for services
rendered was not denied, the only question being
the assessment of the proper fees and the
balance due to appellee after deducting the
admitted payments made by appellant, the trial
court, upon agreement of the parties, authorized
the case to be heard before a Commissioner. The
Commissioner rendered a report which, in
resume, states that the amount due to appellee
was $28,000.00 (U.S.) as his fee in the
International Research Institute Project which
was twenty percent (20%) of the $140,000.00
that was paid to appellant, and P51,539.91 for
the other projects, less the sum of P69,475.46
which was already paid by the appellant. The
Commissioner also recommended the payment
to appellee of the sum of P5,000.00 as attorney's
fees.
At the hearing on the Report of the
Commissioner, the respective counsel of the
parties manifested to the court that they had no
objection to the findings of fact of the
Commissioner contained in the Report, and they
agreed that the said Report posed only two legal
issues, namely: (1) whether under the facts
stated in the Report, the doctrine of estoppel
would apply; and (2) whether the
recommendation in the Report that the payment
of the amount. due to the plaintiff in dollars was
legally permissible, and if not, at what rate of
exchange it should be paid in pesos. After the
parties had submitted their respective
memorandum on said issues, the trial court
rendered its decision dated February 10, 1967,
the dispositive portion of which reads as
follows:
WHEREFORE, judgment is rendered in favor of
plaintiff and against the defendant, by ordering
the defendant to pay plaintiff the sum of
P51,539.91 and $28,000.00, the latter to be
converted into the Philippine currency on the
basis of the current rate of exchange at the time
of the payment of this judgment, as certified to
by the Central Bank of the Philippines, from
which shall be deducted the sum of P69,475.46,
which the defendant had paid the plaintiff, and
the legal rate of interest thereon from the filing
of the complaint in the case until fully paid for;
by ordering the defendant to pay to plaintiff the
further sum of P8,000.00 by way of attorney's
fees which the Court finds to be reasonable in
the premises, with costs against the defendant.
The counterclaim of the defendant is ordered
dismissed.
From the decision, this appeal was brought,
directly to this Court, raising only questions of
law.
During the pendency of this appeal, appellee
filed a petition for the issuance of a writ of
attachment under Section 1 (f) of Rule 57 of the
Rules of Court upon the ground that appellant is
presently residing in Canada as a permanent
resident thereof. On June 3, 1969, this Court
resolved, upon appellee's posting a bond of
P10,000.00, to issue the writ of attachment, and
ordered the Provincial Sheriff of Rizal to attach
the estate, real and personal, of appellant Alfredo
J. Luz within the province, to the value of not
less than P140,000.00.
The appellant made the following assignments
of errors:
I. The lower court erred in not declaring and
holding that plaintiff-appellee's letter dated
December 11, 1961 (Exhibit "1") and the
statement of account (Exhibit "1-A") therein
enclosed, had the effect, cumulatively or
alternatively, of placing plaintiff-appellee in
estoppel from thereafter modifying the
representations made in said exhibits, or of
making plaintiff-appellee otherwise bound by
said representations, or of being of decisive
weight in determining the true intent of the
parties as to the nature and extent of the
engineering services rendered and/or the amount
of fees due.
II. The lower court erred in declaring and
holding that the balance owing from defendant-
appellant to plaintiff-appellee on the IRRI
Project should be paid on the basis of the rate of
exchange of the U.S. dollar to the Philippine
peso at the time of payment of judgment. .
III. The lower court erred in not declaring and
holding that the aggregate amount of the balance
due from defendant-appellant to plaintiff-
appellee is only P15,792.05.
IV. The lower court erred in awarding attorney's
fees in the sum of P8,000.00, despite the
commissioner's finding, which plaintiff-appellee
has accepted and has not questioned, that said
fee be only P5,000.00; and
V. The lower court erred in not granting
defendant-appellant relief on his counter-claim.
1. In support of his first assignment of error
appellant argues that in Exhibit 1-A, which is a
statement of accounts dated December 11, 1961,
sent by appellee to appellant, appellee specified
the various projects for which he claimed
engineering fees, the precise amount due on
each particular engineering service rendered on
each of the various projects, and the total of his
claims; that such a statement barred appellee
from asserting any claim contrary to what was
stated therein, or from taking any position
different from what he asserted therein with
respect to the nature of the engineering services
rendered; and consequently the trial court could
not award fees in excess of what was stated in
said statement of accounts. Appellant argues that
for estoppel to apply it is not necessary, contrary
to the ruling of the trial court, that the appellant
should have actually relied on the
representation, but that it is sufficient that the
representations were intended to make the
defendant act there on; that
assuming arguendo that Exhibit 1-A did not put
appellee in estoppel, the said Exhibit 1-A
nevertheless constituted a formal admission that
would be binding on appellee under the law on
evidence, and would not only belie any
inconsistent claim but also would discredit any
evidence adduced by appellee in support of any
claim inconsistent with what appears therein;
that, moreover, Exhibit 1-A, being a statement of
account, establishes prima facie the accuracy
and correctness of the items stated therein and
its correctness can no longer be impeached
except for fraud or mistake; that Exhibit 1-A
furthermore, constitutes appellee's own
interpretation of the contract between him and
appellant, and hence, is conclusive against him.
On the other hand, appellee admits that Exhibit
1-A itemized the services rendered by him in the
various construction projects of appellant and
that the total engineering fees charged therein
was P116,565.00, but maintains that he was not
in estoppel: first, because when he prepared
Exhibit 1-A he was laboring under an innocent
mistake, as found by the trial court; second,
because appellant was not ignorant of the
services actually rendered by appellee and the
fees due to the latter under the original
agreement, Exhibit "A."
We find merit in the stand of appellee.
The statement of accounts (Exh. 1-A) could not
estop appellee, because appellant did not rely
thereon as found by the Commissioner, from
whose Report we read:
While it is true that plaintiff vacillated in his
claim, yet, defendant did not in anyway rely or
believe in the different claims asserted by the
plaintiff and instead insisted on a claim that
plaintiff was only entitled to P10,861.08 as per a
separate resume of fees he sent to the plaintiff on
May 18, 1962 (See Exhibit 6). 4
The foregoing finding of the Commissioner, not
disputed by appellant, was adopted by the trial
court in its decision. Under article 1431 of the
Civil Code, in order that estoppel may apply the
person, to whom representations have been
made and who claims the estoppel in his favor
must have relied or acted on such
representations. Said article provides:
Art. 1431. Through 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.
An essential element of estoppel is that the
person invoking it has been influenced and has
relied on the representations or conduct of the
person sought to be estopped, and this element is
wanting in the instant case. In Cristobal vs.
Gomez, 5 this Court held that no estoppel based
on a document can be invoked by one who has
not been mislead by the false statements
contained therein. And in Republic of the
Philippines vs. Garcia, et al., 6 this Court ruled
that there is no estoppel when the statement or
action invoked as its basis did not mislead the
adverse party-Estoppel has been characterized as
harsh or odious and not favored in law. 7 When
misapplied, estoppel becomes a most effective
weapon to accomplish an injustice, inasmuch as
it shuts a man's mouth from speaking the truth
and debars the truth in a particular
case. 8 Estoppel cannot be sustained by mere
argument or doubtful inference: it must be
clearly proved in all its essential elements by
clear, convincing and satisfactory evidence. 9 No
party should be precluded from making out his
case according to its truth unless by force of
some positive principle of law, and,
consequently, estoppel in pains must be applied
strictly and should not be enforced unless
substantiated in every particular. 1 0
The essential elements of estoppel in pais may
be considered in relation to the party sought to
be estopped, and in relation to the party
invoking the estoppel in his favor. As related to
the party to be estopped, the essential elements
are: (1) conduct amounting to false
representation or concealment of material facts
or at least calculated to convey the impression
that the facts are otherwise than, and
inconsistent with, those which the party
subsequently attempts to assert; (2) intent, or at
least expectation that his conduct shall be acted
upon by, or at least influence, the other party;
and (3) knowledge, actual or constructive, of the
real facts. As related to the party claiming the
estoppel, the essential elements are (1) lack of
knowledge and of the means of knowledge of
the truth as the facts in questions; (2) (reliance,
in good faith, upon the conduct or statements of
the party to be estopped; (3) action or inaction
based thereon of such character as To change the
position or status of the party claiming the
estoppel, to his injury, detriment or prejudice. 1 1
The first essential element in relation to the
party sought to be estopped does not obtain in
the instant case, for, as appears in the Report of
the Commissioner, appellee testified "that when
he wrote Exhibit 1 and prepared Exhibit 1-A, he
had not yet consulted the services of his counsel
and it was only upon advice of counsel that the
terms of the contract were interpreted to him
resulting in his subsequent letters to the
defendant demanding payments of his fees
pursuant to the contract Exhibit A." 1 2 This
finding of the Commissioner was adopted by the
trial court. 1 3 It is established , therefore, that
Exhibit 1-A was written by appellee through
ignorance or mistake. Anent this matter, it has
been held that if an act, conduct or
misrepresentation of the party sought to be
estopped is due to ignorance founded on
innocent mistake, estoppel will not
arise. 1 4 Regarding the essential elements of
estoppel in relation to the party claiming the
estoppel, the first element does not obtain in the
instant case, for it cannot be said that appellant
did not know, or at least did not have the means
of knowing, the services rendered to him by
appellee and the fees due thereon as provided in
Exhibit A. The second element is also wanting,
for, as adverted to, appellant did not rely on
Exhibit 1-A but consistently denied the accounts
stated therein. Neither does the third element
obtain, for appellant did not act on the basis of
the representations in Exhibit 1-A, and there was
no change in his position, to his own injury or
prejudice.
Appellant, however, insists that if Exhibit 1-A
did not put appellee in estoppel, it at least
constituted an admission binding upon the latter.
In this connection, it cannot be gainsaid that
Exhibit 1-A is not a judicial admission.
Statements which are not estoppels nor judicial
admissions have no quality of conclusiveness,
and an opponent. whose admissions have been
offered against him may offer any evidence
which serves as an explanation for his former
assertion of what he now denies as a fact. This
may involve the showing of a mistake.
Accordingly, in Oas vs. Roa, 1 6 it was held that
when a party to a suit has made an admission of
any fact pertinent to the issue involved, the
admission can be received against him; but such
an admission is not conclusive against him, and
he is entitled to present evidence to overcome
the effect of the admission. Appellee did explain,
and the trial court concluded, that Exhibit 1-A
was based on either his ignorance or innocent
mistake and he, therefore, is not bound by it.
Appellant further contends that Exhibit 1-A
being a statement of account, establishes prima
facie the accuracy and correctness of the items
stated therein. If prima facie, as contended by
appellant, then it is not absolutely conclusive
upon the parties. An account stated may be
impeached for fraud, mistake or error. In
American Decisions, Vol. 62, p. 95, cited as
authority by appellant himself. we read thus:
An account stated or settled is a mere admission
that the account is correct. It is not an estoppel.
The account is still open to impeachment for
mistakes or errors. Its effect is to
establish, prima facie, the accuracy of the items
without other proof; and the party seeking to
impeach it is bound to show affirmatively the
mistake or error alleged. The force of the
admission and the strength of the evidence
necessary to overcome it will depend upon the
circumstances of the case.
In the instant case, it is Our view that the
ignorance mistake that attended the writing of
Exhibit 1-A by appellee was sufficient to
overcome the prima facie evidence of
correctness and accuracy of said Exhibit 1-A.
Appellant also urges that Exhibit 1-A constitutes
appellee's own interpretation of the contract, and
is, therefore, conclusive against him. Although
the practical construction of the contract by one
party, evidenced by his words or acts, can be
used against him in behalf of the other
party, 1 7 yet, if one of the parties carelessly
makes a wrong interpretation of the words of his
contract, or performs more than the contract
requires (as reasonably interpreted
independently of his performance), as happened
in the instant case, he should be entitled to a
restitutionary remedy, instead of being bound to
continue to his erroneous interpretation or his
erroneous performance and "the other party
should not be permitted to profit by such
mistake unless he can establish an estoppel by
proving a material change of position made in
good faith. The rule as to practical construction
does not nullify the equitable rules with respect
to performance by mistake." 1 8 In the instant
case, it has been shown that Exhibit 1-A was
written through mistake by appellee and that the
latter is not estopped by it. Hence, even if said
Exhibit 1-A be considered as practical
construction of the contract by appellee, he
cannot be bound by such erroneous
interpretation. It has been held that if by mistake
the parties followed a practice in violation of the
terms of the agreement, the court should not
perpetuate the error. 1 9
2. In support of the second assignment of error,
that the lower court erred in holding that the
balance from appellant on the IRRI project
should be paid on the basis of the rate of
exchange of the U.S. dollar to the Philippine
peso at the time of payment of the judgment,
appellant contends: first, that the official rate at
the time appellant received his architect's fees
for the IRRI project, and correspondingly his
obligation to appellee's fee on August 25, 1961,
was P2.00 to $1.00, and cites in support thereof
Section 1612 of the Revised Administrative
Code, Section 48 of Republic Act 265 and
Section 6 of Commonwealth Act No. 699;
second, that the lower court's conclusion that the
rate of exchange to be applied in the conversion
of the $28,000.00 is the current rate of exchange
at the time the judgment shall be satisfied was
based solely on a mere presumption of the trial
court that the defendant did not convert, there
being no showing to that effect, the dollars into
Philippine currency at the official rate, when the
legal presumption should be that the dollars
were converted at the official rate of $1.00 to
P2.00 because on August 25, 1961, when the
IRRI project became due and payable, foreign
exchange controls were in full force and effect,
and partial decontrol was effected only
afterwards, during the Macapagal
administration; third, that the other ground
advanced by the lower court for its ruling, to
wit, that appellant committed a breach of his
obligation to turn over to the appellee the
engineering fees received in U.S. dollars for the
IRRI project, cannot be upheld, because there
was no such breach, as proven by the fact that
appellee never claimed in Exhibit 1-A that he
should be paid in dollars; and there was no
provision in the basic contract (Exh. "A") that he
should be paid in dollars; and, finally, even if
there were such provision, it would have no
binding effect under the provision of Republic
Act 529; that, moreover, it cannot really be said
that no payment was made on that account for
appellant had already paid P57,000.00 to
appellee, and under Article 125 of the Civil
Code, said payment could be said to have been
applied to the fees due from the IRRI project,
this project being the biggest and this debt being
the most onerous.
In refutation of appellant's argument in support
of the second assignment of error, appellee
argues that notwithstanding Republic Act 529,
appellant can be compelled to pay the appellee
in dollars in view of the fact that appellant
received his fees in dollars, and appellee's fee is
20% of appellant's fees; and that if said amount
is be converted into Philippine Currency, the rate
of exchange should be that at the time of the
execution of the judgment. 2 0
We have taken note of the fact that on August
25, 1961, the date when appellant said his
obligation to pay appellee's fees became due,
there was two rates of exchange, to wit: the
preferred rate of P2.00 to $1.00, and the free
market rate. It was so provided in Circular No.
121 of the Central Bank of the Philippines, dated
March 2, 1961. amending an earlier Circular No.
117, and in force until January 21, 1962 when it
was amended by Circular No. 133, thus:
1. All foreign exchange receipts shall be
surrendered to the Central Bank of those
authorized to deal in foreign exchange as
follows:
Percentage of Total to be surrendered at
Preferred: Free Market Rate: Rate:
(a) Export Proceeds, U.S. Government
Expenditures invisibles other than those
specifically mentioned
below. ................................................ 25 75
(b) Foreign Investments, Gold Proceeds,
Tourists and Inward Remittances of Veterans and
Filipino Citizens; and Personal Expenses of
Diplomatic Per personnel .................................
100" 2 1
The amount of $140,000.00 received by
appellant foil the International Rice Research
Institute project is not within the scope of sub-
paragraph (a) of paragraph No. 1 of Circular No.
121. Appellant has not shown that 25% of said
amount had to be surrendered to the Central
Bank at the preferred rate because it was either
export proceeds, or U.S. Government
expenditures, or invisibles not included in sub-
paragraph (b). Hence, it cannot be said that the
trial court erred in presuming that appellant
converted said amount at the free market rate. It
is hard to believe that a person possessing
dollars would exchange his dollars at the
preferred rate of P2.00 to $1.00, when he is not
obligated to do so, rather than at the free market
rate which is much higher. A person is presumed
to take ordinary care of his concerns, and that
the ordinary course of business has been
followed. 2 2
Under the agreement, Exhibit A, appellee was
entitled to 20% of $140,000.00, or the amount of
$28,000.00. Appellee, however, cannot oblige
the appellant to pay him in dollars, even if
appellant himself had received his fee for the
IRRI project in dollars. This payment in dollars
is prohibited by Republic Act 529 which was
enacted on June 16, 1950. Said act provides as
follows:
SECTION 1. Every provision contained in, or
made with respect to, any obligation which
provision purports to give the obligee the right
to require payment in gold or in a particular kind
of coin or currency other than Philippine
currency or in an amount of money of the
Philippines measured thereby, be as it is hereby
declared against public policy, and null, void and
of no effect, and no such provision shall be
contained in, or made with respect to, any
obligation hereafter incurred. Every obligation
heretofore or here after 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: Provided,
That, ( a) if the obligation was incurred prior to
the enactment of this Act and required payment
in a particular kind of coin or currency other
than Philippine currency, it shall be discharged
in Philippine currency measured at the
prevailing rate of exchange at the time the
obligation was incurred, (b) except in case of a
loan made in a foreign currency stipulated to be
payable in the same currency in which case the
rate of exchange prevailing at the time of the
stipulated date of payment shall prevail. All coin
and currency, including Central Bank notes,
heretofore or hereafter issued and declared by
the Government of the Philippines shall be legal
tender for all debts, public and private.
Under the above-quoted provision of Republic
Act 529, if the obligation was incurred prior to
the enactment of the Act and require payment in
a particular kind of coin or currency other than
the Philippine currency the same shall be
discharged in Philippine currency measured at
the prevailing rate of exchange at the time the
obligation was incurred. As We have adverted
to, Republic Act 529 was enacted on June 16,
1950. In the case now before Us the obligation
of appellant to pay appellee the 20% of
$140,000.00, or the sum of $28,000.00, accrued
on August 25, 1961, or after the enactment of
Republic Act 529. It follows that the provision
of Republic Act 529 which requires payment at
the prevailing rate of exchange when the
obligation was incurred cannot be applied.
Republic Act 529 does not provide for the rate
of exchange for the payment of obligation
incurred after the enactment of said Act. The
logical Conclusion, therefore, is that the rate of
exchange should be that prevailing at the time of
payment. This view finds support in the ruling of
this Court in the case of Engel vs. Velasco &
Co. 2 3 where this Court held that even if the
obligation assumed by the defendant was to pay
the plaintiff a sum of money expressed in
American currency, the indemnity to be allowed
should be expressed in Philippine currency at
the rate of exchange at the time of judgment
rather than at the rate of exchange prevailing on
the date of defendant's breach. This is also the
ruling of American court as follows:
The value in domestic money of a payment
made in foreign money is fixed with respect to
the rate of exchange at the time of payment. (70
CJS p. 228)
According to the weight of authority the amount
of recovery depends upon the current rate of
exchange, and not the par value of the particular
money involved. (48 C.J. 605-606)
The value in domestic money of a payment
made in foreign money is fixed in reference to
the rate of exchange at the time of such
payment. (48 C.J. 605)
It is Our considered view, therefore, that
appellant should pay the appellee the equivalent
in pesos of the $28,000.00 at the free market rate
of exchange at the time of payment. And so the
trial court did not err when it held that herein
appellant should pay appellee $28,000.00 "to be
converted into the Philippine currency on the
basis of the current rate of exchange at the time
of payment of this judgment, as certified to by
the Central Bank of the Philippines, ...." 2 4
Appellant also contends that the P57,000.00 that
he had paid to appellee should have been applied
to the due to the latter on the IRRI project
because such debt was the most onerous to
appellant. This contention is untenable. The
Commissioner who was authorized by the trial
court to receive evidence in this case, however,
reports that the appellee had not been paid for
the account of the $28,000.00 which represents
the fees of appellee equivalent to 20% of the
$140,000.00 that the appellant received as fee
for the IRRI project. This is a finding of fact by
the Commissioner which was adopted by the
trial court. The parties in this case have agreed
that they do not question the finding of fact of
the Commissioner. Thus, in the decision
appealed from the lower court says:
At the hearing on the Report of the
Commissioner on February 15, 1966, the
counsels for both parties manifested to the court
that they have no objection to the findings of
facts of the Commissioner in his report; and
agreed that the said report only poses two
(2)legal issues, namely: (1) whether under the
facts stated in the Report, the doctrine of
estoppel will apply; and (2) whether the
recommendation in the Report that the payment
of amount due to the plaintiff in dollars is
permissible under the law, and, if not, at what
rate of exchange should it be paid in pesos
(Philippine currency) .... 2 5
In the Commissioner's report, it is spetifically
recommended that the appellant be ordered to
pay the plaintiff the sum of "$28,000. 00 or its
equivalent as the fee of the plaintiff under
Exhibit A on the IRRI project." It is clear from
this report of the Commissioner that no payment
for the account of this $28,000.00 had been
made. Indeed, it is not shown in the record that
the peso equivalent of the $28,000.00 had been
fixed or agreed upon by the parties at the
different times when the appellant had made
partial payments to the appellee.
3. In his third assignment of error, appellant
contends that the lower court erred in not
declaring that the aggregate amount due from
him to appellee is only P15,792.05. Appellant
questions the propriety or correctness of most of
the items of fees that were found by the
Commissioner to be due to appellee for services
rendered. We believe that it is too late for the
appellant to question the propriety or correctness
of those items in the present appeal. The record
shows that after the Commissioner had
submitted his report the lower court, on
February 15, 1966, issued the following order:
When this case was called for hearing today on
the report of the Commissioner, the counsels of
the parties manifested that they have no
objection to the findings of facts in the report.
However, the report poses only legal issues,
namely: (1) whether under the facts stated in the
report, the doctrine of estoppel will apply; and
(2) whether the recommendation in the report
that the alleged payment of the defendant be
made in dollars is permissible by law and, if not,
in what rate it should be paid in pesos
(Philippine Currency). For the purpose of
resolving these issues the parties prayed that
they be allowed to file their respective
memoranda which will aid the court in the
determination of said issues. 2 6
In consonance with the afore-quoted order of the
trial court, the appellant submitted his
memorandum which opens with the following
statements:
As previously manifested, this Memorandum
shall be confined to:
(a) the finding in the Commissioner's Report that
defendant's defense of estoppel will not lie (pp.
17-18, Report); and
(b) the recommendation in the Commissioner's
Report that defendant be ordered to pay plaintiff
the sum of '$28,000.00 (U.S.) or its equivalent as
the fee of the plaintiff under Exhibit 'A' in the
IRRI project.'
More specifically this Memorandum proposes to
demonstrate the affirmative of three legal
issuesposed, namely:
First: Whether or not plaintiff's letter dated
December 11, 1961 (Exhibit 'I') and/or
Statement of Account (Exhibit '1-A') therein
enclosed has the effect of placing plaintiff in
estoppel from thereafter modifying
the representations made in said letter and
Statement of Account or of making plaintiff
otherwise bound thereby; or of being decisive or
great weight in determining the true intent of the
parties as to the amount of the engineering fees
owing from defendant to plaintiff;
Second: Whether or not defendant can be
compelled to pay whatever balance is owing to
plaintiff on the IRRI (International Rice and
Research Institute) project in United States
dollars; and
Third: Whether or not in case the ruling of this
Honorable Court be that defendant cannot be
compelled to pay plaintiff in United States
dollars, the dollar-to-peso convertion rate for
determining the peso equivalent of whatever
balance is owing to plaintiff in connection with
the IRRI project should be the 2 to 1 official rate
and not any other rate. 2 7
It is clear, therefore, that what was submitted by
appellant to the lower court for resolution did
not include the question of correctness or
propriety of the amounts due to appellee in
connection with the different projects for which
the appellee had rendered engineering services.
Only legal questions, as above enumerated, were
submitted to the trial court for resolution. So
much so, that the lower court in another portion
of its decision said, as follows:
The objections to the Commissioner's Report
embodied in defendant's memorandum of
objections, dated March 18, 1966, cannot
likewise be entertained by the Court because at
the hearing of the Commissioner's Report the
parties had expressly manifested that they had
no objection to the findings of facts embodied
therein.
We, therefore hold that the third assignment of
error of the appellant has no merit.
4. In his fourth assignment of error, appellant
questions the award by the lower court of
P8,000.00 for attorney's fees. Appellant argues
that the Commissioner, in his report, fixed the
sum of P5,000.00 as "just and reasonable"
attorney's fees, to which amount appellee did not
interpose any objection, and by not so objecting
he is bound by said finding; and that, moreover,
the lower court gave no reason in its decision for
increasing the amount to P8,000.00.
Appellee contends that while the parties had not
objected to the findings of the Commissioner,
the assessment of attorney's fees is always
subject to the court's appraisal, and in increasing
the recommended fees from P5,000.00 to
P8,000.00 the trial court must have taken into
consideration certain circumstances which
warrant the award of P8,000.00 for attorney's
fees.
We believe that the trial court committed no
error in this connection. Section 12 of Rule 33 of
the Rules of Court, on which the fourth
assignment of error is presumably based,
provides that when the parties stipulate that a
commissioner's findings of fact shall be final,
only questions of law arising from the facts
mentioned in the report shall thereafter be
considered. Consequently, an agreement by the
parties to abide by the findings of fact of the
commissioner is equivalent to an agreement of
facts binding upon them which the court cannot
disregard. The question, therefore, is whether or
not the estimate of the reasonable fees stated in
the report of the Commissioner is a finding of
fact.
The report of the Commissioner on this matter
reads as follows:
As regards attorney's fees, under the provisions
of Art 2208, par (11), the same may be awarded,
and considering the number of hearings held in
this case, the nature of the case (taking into
account the technical nature of the case and the
voluminous exhibits offered in evidence), as
well as the way the case was handled by
counsel, it is believed, subject to the Court's
appraisal of the matter, that the sum of
P5,000.00 is just and reasonable as attorney's
fees." 2 8
It is thus seen that the estimate made by the
Commissioner was an expression of belief, or an
opinion. An opinionis different from a fact. The
generally recognized distinction between a
statement of "fact" and an expression of
"opinion" is that whatever is susceptible of exact
knowledge is a matter of fact, while that not
susceptible of exact knowledge is generally
regarded as an expression of opinion. 2 9 It has
also been said that the word "fact," as employed
in the legal sense includes "those conclusions
reached by the trior from shifting testimony,
weighing evidence, and passing on the credit of
the witnesses, and it does not denote those
inferences drawn by the trial court from the facts
ascertained and settled by it. 3 0 In the case at
bar, the estimate made by the Commissioner of
the attorney's fees was an inference from the
facts ascertained by him, and is, therefore, not a
finding of facts. The trial court was,
consequently, not bound by that estimate, in
spite of the manifestation of the parties that they
had no objection to the findings of facts of the
Commissioner in his report. Moreover, under
Section 11 of Rule 33 of the Rules of Court, the
court may adopt, modify, or reject the report of
the commissioner, in whole or in part, and
hence, it was within the trial court's authority to
increase the recommended attorney's fees of
P5,000.00 to P8,000.00. It is a settled rule that
the amount of attorney's fees is addressed to the
sound discretion of the court. 3 1
It is true, as appellant contends, that the trial
court did not state in the decision the reasons for
increasing the attorney's fees. The trial court,
however, had adopted the report of the
Commissioner, and in adopting the report the
trial court is deemed to have adopted the reasons
given by the Commissioner in awarding
attorney's fees, as stated in the above-quoted
portion of the report. Based on the reasons stated
in the report, the trial court must have
considered that the reasonable attorney's fees
should be P8,000.00. Considering that the
judgment against the appellant would amount to
more than P100,000.00, We believe that the
award of P8,000.00 for attorney's fees is
reasonable.
5. In his fifth assignment of error appellant urges
that he is entitled to relief on his counterclaim.
In view of what We have stated in connection
with the preceding four assignments of error, We
do not consider it necessary to dwell any further
on this assignment of error.
WHEREFORE, the decision appealed from is
affirmed, with costs against the defendant-
appellant. It is so ordered.
 [G.R. No. 105188. January 23, 1998]
MYRON C. PAPA, Administrator of the Testate
Estate of Angela M. Butte, petitioner, vs. A. U.
VALENCIA and CO. INC., FELIX
PEARROYO, SPS. ARSENIO B. REYES &
AMANDA SANTOS, and DELFIN
JAO, respondents.
DECISION
KAPUNAN, J.:
In this petition for review
on certiorari under Rule 45 of the Rules of
Court, petitioner Myron C. Papa seeks to reverse
and set aside 1) the Decision dated 27 January
1992 of the Court of Appeals which affirmed
with modification the decision of the trial court;
and, 2) the Resolution dated 22 April 1992 of the
same court, which denied petitioners motion for
reconsideration of the above decision.
The antecedent facts of this case are as
follows:
Sometime in June 1982, herein private
respondents A.U. Valencia and Co., Inc.
(hereinafter referred to as respondent Valencia,
for brevity) and Felix Pearroyo (hereinafter
called respondent Pearroyo), filed with the
Regional Trial Court of Pasig, Branch 151, a
complaint for specific performance against
herein petitioner Myron C. Papa, in his capacity
as administrator of the Testate Estate of one
Angela M. Butte.
The complaint alleged that on 15 June
1973, petitioner Myron C. Papa, acting as
attorney-in-fact of Angela M. Butte, sold to
respondent Pearroyo, through respondent
Valencia, a parcel of land, consisting of 286.60
square meters, located at corner Retiro and
Cadiz Streets, La Loma, Quezon City, and
covered by Transfer Certificate of Title No.
28993 of the Register of Deeds of Quezon City;
that prior to the alleged sale, the said property,
together with several other parcels of land
likewise owned by Angela M. Butte, had been
mortgaged by her to the Associated Banking
Corporation (now Associated Citizens Bank);
that after the alleged sale, but before the title to
the subject property had been released, Angela
M. Butte passed away; that despite
representations made by herein respondents to
the bank to release the title to the property sold
to respondent Pearroyo, the bank refused to
release it unless and until all the mortgaged
properties of the late Angela M. Butte were also
redeemed; that in order to protect his rights and
interests over the property, respondent Pearroyo
caused the annotation on the title of an adverse
claim as evidenced by Entry No. P.E. - 6118/T-
28993, inscribed on 18 January 1977.
The complaint further alleged that it was
only upon the release of the title to the property,
sometime in April 1977, that respondents
Valencia and Pearroyo
discovered that the mortgage rights of the bank
had been assigned to one Tomas L. Parpana
(now deceased), as special administrator of the
Estate of Ramon Papa, Jr., on 12 April 1977; that
since then, herein petitioner had been collecting
monthly rentals in the amount of P800.00 from
the tenants of the property, knowing that said
property had already been sold to private
respondents on 15 June 1973; that despite
repeated demands from said respondents,
petitioner refused and failed to deliver the title to
the property. Thereupon, respondents Valencia
and Pearroyo filed a complaint for specific
performance, praying that petitioner be ordered
to deliver to respondent Pearroyo the title to the
subject property (TCT 28993); to turn over to
the latter the sum of P72,000.00 as accrued
rentals as of April 1982, and the monthly rental
of P800.00 until the property is delivered to
respondent Pearroyo; to pay respondents the
sum of P20,000.00 as attorneys fees; and to pay
the costs of the suit.
In his Answer, petitioner admitted that the
lot had been mortgaged to the Associated
Banking Corporation (now Associated Citizens
Bank). He contended, however, that the
complaint did not state a cause of action; that the
real property in interest was the Testate Estate of
Angela M. Butte, which should have been joined
as a party defendant; that the case amounted to a
claim against the Estate of Angela M. Butte and
should have been filed in Special Proceedings
No. A-17910 before the Probate Court in
Quezon City; and that, if as alleged in the
complaint, the property had been assigned to
Tomas L. Parpana, as special administrator of
the Estate of Ramon Papa, Jr., said estate should
be impleaded. Petitioner, likewise, claimed that
he could not recall in detail the transaction
which allegedly occurred in 1973; that he did
not have TCT No. 28993 in his possession; that
he could not be held personally liable as he
signed the deed merely as attorney-in-fact of
said Angela M. Butte. Finally, petitioner
asseverated that as a result of the filing of the
case, he was compelled to hire the services of
counsel for a fee of P20,000.00, for which
respondents should be held liable.
Upon his motion, herein private respondent
Delfin Jao was allowed to intervene in the case.
Making common cause with respondents
Valencia and Pearroyo, respondent Jao alleged
that the subject lot which had been sold to
respondent Pearroyo through respondent
Valencia was in turn sold to him on 20 August
1973 for the sum of P71,500.00, upon his paying
earnest money in the amount of P5,000.00. He,
therefore, prayed that judgment be rendered in
favor of respondents Valencia and Pearroyo;
and, that after the delivery of the title to said
respondents, the latter in turn be ordered to
execute in his favor the appropriate deed of
conveyance covering the property in question
and to turn over to him the rentals which
aforesaid respondents sought to collect from
petitioner Myron C. Papa.
Respondent Jao, likewise, averred that as a
result of petitioners refusal to deliver the title to
the property to respondents Valencia and
Pearroyo, who in turn failed to deliver the said
title to him, he suffered mental anguish and
serious anxiety for which he sought payment of
moral damages; and, additionally, the payment
of attorneys fees and costs.
For his part, petitioner, as administrator of
the Testate Estate of Angela M. Butte, filed a
third-party complaint against herein private
respondents, spouses Arsenio B. Reyes and
Amanda Santos (respondent Reyes spouses, for
short). He averred, among others, that the late
Angela M. Butte was the owner of the subject
property; that due to non-payment of real estate
tax said property was sold at public auction by
the City Treasurer of Quezon City to the
respondent Reyes spouses on 21 January 1980
for the sum of P14,000.00; that the one-year
period of redemption had expired; that
respondents Valencia and Pearroyo had sued
petitioner Papa as administrator of the estate
of Angela M. Butte, for the delivery of the title
to the property; that the same aforenamed
respondents had acknowledged that the price
paid by them was insufficient, and that they
were willing to add a reasonable amount or a
minimum of P55,000.00 to the price upon
delivery of the property, considering that the
same was estimated to be worth P143,000.00;
that petitioner was willing to reimburse
respondent Reyes spouses whatever amount they
might have paid for taxes and other charges,
since the subject property was still registered in
the name of the late Angela M. Butte; that it was
inequitable to allow respondent Reyes spouses
to acquire property estimated to be
worth P143,000.00, for a measly sum
of P14,000.00. Petitioner prayed that judgment
be rendered cancelling the tax sale to respondent
Reyes spouses; restoring the subject property to
him upon payment by him to said respondent
Reyes spouses of the amount of P14,000.00,
plus legal interest; and, ordering
respondents Valencia and Pearroyo to pay him at
least P55,000.00 plus everything they might
have to pay the Reyes spouses in recovering the
property.
Respondent Reyes spouses in their Answer
raised the defense of prescription of petitioners
right to redeem the property.
At the trial, only respondent Pearroyo
testified. All the other parties only submitted
documentary proof.
On 29 June 1987, the trial court rendered a
decision, the dispositive portion of which reads:
WHEREUPON, judgment is hereby rendered as
follows:
1) Allowing defendant to redeem from third-
party defendants and ordering the latter to allow
the former to redeem the property in question,
by paying the sum of P14,000.00 plus legal
interest of 12% thereon from January 21, 1980;
2) Ordering defendant to execute a Deed of
Absolute Sale in favor of plaintiff Felix
Pearroyo covering the property in question and
to deliver peaceful possession and enjoyment of
the said property to the said plaintiff, free from
any liens and encumbrances;
Should this not be possible, for any reason not
attributable to defendant, said defendant is
ordered to pay to plaintiff Felix Pearroyo the
sum of P45,000.00 plus legal interest of 12%
from June 15, 1973;
3) Ordering plaintiff Felix Pearroyo to execute
and deliver to intervenor a deed of absolute sale
over the same property, upon the latters payment
to the former of the balance of the purchase
price of P71,500.00;
Should this not be possible, plaintiff Felix
Pearroyo is ordered to pay intervenor the sum
of P5,000.00 plus legal interest of 12% from
August 23, 1973; and
4) Ordering defendant to pay plaintiffs the
amount of P5,000.00 for and as attorneys fees
and litigation expenses.
SO ORDERED.[1]
Petitioner appealed the aforesaid decision
of the trial court to the Court of Appeals,
alleging among others that the sale was never
consummated as he did not encash the check (in
the amount of P40,000.00) given by respondents
Valencia and Pearroyo in payment of the full
purchase price of the subject lot. He maintained
that what said respondents had actually paid was
only the amount of P5,000.00 (in cash) as
earnest money.
Respondent Reyes spouses, likewise,
appealed the above decision. However, their
appeal was dismissed because of failure to file
their appellants brief.
On 27 January 1992, the Court of Appeals
rendered a decision, affirming with modification
the trial courts decision, thus:
WHEREFORE, the second paragraph of the
dispositive portion of the appealed decision is
MODIFIED, by ordering the defendant-
appellant to deliver to plaintiff-appellees the
owners duplicate of TCT No. 28993 of Angela
M. Butte and the peaceful possession and
enjoyment of the lot in question or, if the owners
duplicate certificate cannot be produced, to
authorize the Register of Deeds to cancel it and
issue a certificate of title in the name of Felix
Pearroyo. In all other respects, the decision
appealed from is AFFIRMED. Costs against
defendant-appellant Myron C. Papa.
SO ORDERED.[2]
In affirming the trial courts decision,
respondent court held that contrary to petitioners
claim that he did not encash the aforesaid check,
and therefore, the sale was not consummated,
there was no evidence at all that petitioner did
not, in fact, encash said check. On the other
hand, respondent Pearroyo testified in court that
petitioner Papa had received the amount
of P45,000.00 and issued receipts
therefor. According to respondent court, the
presumption is that the check was encashed,
especially since the payment by check was not
denied by defendant-appellant (herein petitioner)
who, in his Answer, merely alleged that he can
no longer recall the transaction which is
supposed to have happened 10 years ago.[3]
On petitioners claim that he cannot be held
personally liable as he had acted merely as
attorney-in-fact of the owner, Angela M. Butte,
respondent court held that such contention is
without merit. This action was not brought
against him in his personal capacity, but in his
capacity as the administrator of the Testate
Estate of Angela M. Butte.[4]
On petitioners contention that the estate of
Angela M. Butte should have been joined in the
action as the real party in interest, respondent
court held that pursuant to Rule 3, Section 3 of
the Rules of Court, the estate of Angela M. Butte
does not have to be joined in the action.
Likewise, the estate of Ramon Papa, Jr., is not
an indispensable party under Rule 3, Section 7
of the same Rules. For the fact is that Ramon
Papa, Jr., or his estate, was not a party to the
Deed of Absolute Sale, and it is basic law that
contracts bind only those who are parties
thereto.[5]
Respondent court observed that the
conditions under which the mortgage rights of
the bank were assigned are not clear. In any
case, any obligation which the estate of Angela
M. Butte might have to the estate of Ramon
Papa, Jr. is strictly between
them. Respondents Valencia and Pearroyo are
not bound by any such obligation.
Petitioner filed a motion for reconsideration
of the above decision, which motion was denied
by respondent Court of Appeals.
Hence, this petition wherein petitioner
raises the following issues:
I. THE CONCLUSION OR FINDING OF
THE COURT OF APPEALS THAT THE SALE
IN QUESTION WAS CONSUMMATED IS
GROUNDED ON SPECULATION OR
CONJECTURE, AND IS CONTRARY TO THE
APPLICABLE LEGAL PRINCIPLE.
II. THE COURT OF APPEALS, IN
MODIFYING THE DECISION OF THE
TRIAL COURT, ERRED BECAUSE IT, IN
EFFECT, CANCELLED OR NULLIFIED AN
ASSIGNMENT OF THE SUBJECT
PROPERTY IN FAVOR OF THE ESTATE OF
RAMON PAPA, JR. WHICH IS NOT A PARTY
IN THIS CASE.
III. THE COURT OF APPEALS ERRED
IN NOT HOLDING THAT THE ESTATE OF
ANGELA M. BUTTE AND THE ESTATE OF
RAMON PAPA, JR. ARE INDISPENSABLE
PARTIES IN THIS CASE.[6]
Petitioner argues that respondent Court
of Appeals erred in concluding that the alleged
sale of the subject property had been
consummated. He contends that such a
conclusion is based on the erroneous
presumption that the check (in the amount
of P40,000.00) had been cashed, citing Art. 1249
of the Civil Code, which provides, in part, that
payment by checks shall produce the effect of
payment only when they have been cashed or
when through the fault of the creditor they have
been impaired.[7] Petitioner insists that he never
cashed said check; and, such being the case, its
delivery never produced the effect of
payment. Petitioner, while admitting that he had
issued receipts for the payments, asserts that said
receipts, particularly the receipt of PCIB Check
No. 761025 in the amount of P40,000.00, do not
prove payment. He avers that there must be a
showing that said check had been encashed. If,
according to petitioner, the check had been
encashed, respondent Pearroyo should have
presented PCIB Check No. 761025 duly
stamped received by the payee, or at least its
microfilm copy.
Petitioner finally avers that, in fact, the
consideration for the sale was still in the hands
of respondents Valencia and Pearroyo,
as evidenced by a letter addressed to him in
which saidrespondents wrote, in part:
x x x. Please be informed that I had been
authorized by Dr. Ramon Papa, Jr., heir of Mrs.
Angela M. Butte to pay you the aforementioned
amount of P75,000.00 for the release and
cancellation of subject propertys mortgage. The
money is with me and if it is alright with you, I
would like to tender the payment as soon as
possible. x x x.[8]
We find no merit in petitioners arguments.
It is an undisputed fact that respondents
Valencia and Pearroyo had given
petitioner Myron C. Papa the amounts of Five
Thousand Pesos (P5,000.00) in cash on 24 May
1973, and Forty Thousand Pesos (P40,000.00) in
check on 15 June 1973, in payment of the
purchase price of the subject lot. Petitioner
himself admits having received said amounts,
[9]
and having issued receipts therefor.
[10]
Petitioners assertion that he never encashed
the aforesaid check is not subtantiated and is at
odds with his statement in his answer that he can
no longer recall the transaction which is
supposed to have happened 10 years ago. After
more than ten (10) years from the payment in
part by cash and in part by check, the
presumption is that the check had been
encashed. As already stated, he even waived the
presentation of oral evidence.
Granting that petitioner had never encashed
the check, his failure to do so for more than ten
(10) years undoubtedly resulted in the
impairment of the check through his
unreasonable and unexplained delay.
While it is true that the delivery of a check
produces the effect of payment only when it is
cashed, pursuant to Art. 1249 of the Civil Code,
the rule is otherwise if the debtor is prejudiced
by the creditors unreasonable delay in
presentment. The acceptance of a check implies
an undertaking of due diligence in presenting it
for payment, and if he from whom it is received
sustains loss by want of such diligence, it will be
held to operate as actual payment of the debt or
obligation for which it was given.[11] It has,
likewise, been held that if no presentment is
made at all, the drawer cannot be held liable
irrespective of loss or injury[12] unless
presentment is otherwise excused. This is in
harmony with Article 1249 of the Civil Code
under which payment by way of check or other
negotiable instrument is conditioned on its being
cashed, except when through the fault of the
creditor, the instrument is impaired. The payee
of a check would be a creditor under this
provision and if its non-payment is caused by his
negligence, payment will be deemed effected
and the obligation for which the check was
given as conditional payment will be discharged.
[13]
Considering that respondents Valencia and
Pearroyo had fulfilled their part of the contract
of sale by delivering the payment of the
purchase price, said respondents, therefore, had
the right to compel petitioner to deliver to them
the owners duplicate of TCT No. 28993 of
Angela M. Butte and the peaceful possession
and enjoyment of the lot in question.
With regard to the alleged assignment of
mortgage rights, respondent Court of Appeals
has found that the conditions under which said
mortgage rights of the bank were assigned are
not clear. Indeed, a perusal of the original
records of the case would show that there is
nothing there that could shed light on the
transactions leading to the said assignment of
rights; nor is there any evidence on record of the
conditions under which said mortgage rights
were assigned. What is certain is that despite the
said assignment of mortgage rights, the title to
the subject property has remained in the name of
the late Angela M. Butte.[14] This much is
admitted by petitioner himself in his answer to
respondents complaint as well as in the third-
party complaint that petitioner filed against
respondent-spouses Arsenio B. Reyes and
Amanda Santos.[15] Assuming arquendo that the
mortgage rights of the Associated Citizens Bank
had been assigned to the estate of Ramon Papa,
Jr., and granting that the assigned mortgage
rights validly exist and constitute a lien on the
property, the estate may file the appropriate
action toenforce such lien. The cause of action
for specific performance which respondents
Valencia and Pearroyo have against petitioner is
different from the cause of action which the
estate of Ramon Papa, Jr. may have to enforce
whatever rights or liens it has on the property by
reason of its being an alleged assignee of the
banks rights of mortgage.
Finally, the estate of Angela M. Butte is not
an indispensable party. Under Section 3 of Rule
3 of the Rules of Court, an executor or
administrator may sue or be sued without
joining the party for whose benefit the action is
presented or defended, thus:
Sec. 3. Representative parties. - A trustee of an
express trust, a guardian, executor or
administrator, or a party authorized by statute,
may sue or be sued without joining the party for
whose benefit the action is presented or
defended; but the court may, at any stage of the
proceedings, order such beneficiary to be made a
party. An agent acting in his own name and for
the benefit of an undisclosed principal may sue
or be sued without joining the principal except
when the contract involves things belonging to
the principal.[16]
Neither is the estate of Ramon Papa, Jr. an
indispensable party without whom, no final
determination of the action can be had.
Whatever prior and subsisting mortgage rights
the estate of Ramon Papa, Jr. has over the
property may still be enforced regardless of the
change in ownership thereof.
WHEREFORE, the petition for review is
hereby DENIED and the Decision of the Court
of Appeals, dated 27 January 1992 is
AFFIRMED.
SO ORDERED.
Davide, Jr., Bellosillo, and Vitug,
JJ., concur.
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:
I Annex C, Petition). Obviously, taking
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,
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.
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, Grio-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. 1 The
sheriff could have quite lawfully required PAL
to deliver to him only cash, i.e., Philippine
currency. If the sheriff had done so, and if PAL
had complied with such a requirement, as it
would have had to, one would have to agree that
legal payment must be deemed to have been
effected. It requires no particularly acute mind to
note that a dishonest sheriff could easily convert
the money and abscond. The fact that the sheriff
in the instant case required, not cash to be
delivered to him, but rather a check made out in
his name, does not change the legal situation.
PAL did notthereby 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. 2 The
judgment creditor, in circumstances like those of
the 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.
Melencio-Herrera, Gancayco, Sarmiento,
Cortes, JJ., concurs.
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. 1 The
sheriff could have quite lawfully required PAL
to deliver to him only cash, i.e., Philippine
currency. If the sheriff had done so, and if PAL
had complied with such a requirement, as it
would have had to, one would have to agree that
legal payment must be deemed to have been
effected. It requires no particularly acute mind to
note that a dishonest sheriff could easily convert
the money and abscond. The fact that the sheriff
in the instant case required, not cash to be
delivered to him, but rather a check made out in
his name, does not change the legal situation.
PAL did notthereby 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. 2 The
judgment creditor, in circumstances like those of
the 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:
ACCORDINGLY, I vote to grant the petition
and to quash the court a quo's alias writ of
execution.
Melencio-Herrera, Gancayco, Sarmiento,
Cortes, JJ., concurs.

Payment of a judgment, to operate as a release Republic of the Philippines

or satisfaction, even pro tanto must be made to Supreme Court
Manila
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 FIRST DIVISION
satisfies it, and, if the plaintiff fails to receive it,
his only remedy is against the officer
(Henderson v. Planters' and Merchants Bank, 59 UNION BANK OF THE G.R. Nos. 173090
SO 493, 178 Ala. 420). PHILIPPINES,
Petitioner, Present:
Payment of an execution satisfies it without CORONA, C.J.,
regard to whether the officer pays it over to the Chairperson,
creditor or misapplies it (340, 33 C.J.S. 644, LEONARDO-DE
citing Elliot v. Higgins, 83 N.C. 459). If - versus - BERSAMIN,
defendant consents to the Sheriff s DEL CASTILLO
misapplication of the money, however, VILLARAMA, J
defendant is estopped to claim that the debt is
satisfied (340, 33 C.J.S. 644, citing Heptinstall v. SPOUSES RODOLFO T. TIU AND Promulgated:
Medlin 83 N.C. 16). VICTORIA N. TIU,
Respondents. September 7, 201
The above rulings find even more cogent x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
application in the case at bar because, as - - - - - - - - - - - - - - - - - -x
contended by petitioner PAL (not denied by
private respondent), when Sheriff Reyes served
DECISION
the writ of execution on PAL, he (Reyes) was
accompanied by private respondent's counsel.
Prudence dictated that when PAL delivered to LEONARDO-DE CASTRO, J.:
Sheriff Reyes the two (2) questioned checks
(payable to Sheriff Reyes), private respondent's
counsel should have insisted on their immediate This is a Petition for Review
encashment by the Sheriff with the drawee bank on Certiorari seeking to reverse the Joint
in order to promptly get hold of the amount [1]
Decision of the Court of Appeals dated
belonging to his client, the judgment creditor.
February 21, 2006 in CA-G.R. CV No. 00190
and CA-G.R. SP No. 00253, as well as the
Resolution[2] dated June 1, 2006 denying the
Motion for Reconsideration.
 87/98/198 505,000.00 03/19/98
The factual and procedural antecedents 87/98/090 449,000.00 02/09/98
of this case are as follows: US$3,632,000.00 [4]

On November 21, 1995, petitioner

Union Bank of the Philippines (Union Bank) On June 23, 1998, Union Bank advised
and respondent spouses Rodolfo T. Tiu and the spouses Tiu through a letter[5] that, in view of
Victoria N. Tiu (the spouses Tiu) entered into a the existing currency risks, the loans shall be
Credit Line Agreement (CLA) whereby Union redenominated to their equivalent Philippine
Bank agreed to make available to the spouses peso amount on July 15, 1998. On July 3, 1998,
Tiu credit facilities in such amounts as may be the spouses Tiu wrote to Union Bank
approved.[3] From September 22, 1997 to March authorizing the latter to redenominate the loans
26, 1998, the spouses Tiu took out various loans at the rate of US$1=P41.40[6]with interest of
pursuant to this CLA in the total amount of three 19% for one year.[7]
million six hundred thirty-two thousand dollars
(US$3,632,000.00), as evidenced by promissory On December 21, 1999, Union Bank
notes: and the spouses Tiu entered into a Restructuring
Agreement.[8] The Restructuring Agreement
PN No. Amount in US$ contains a clause wherein the spouses Tiu
Date Granted
87/98/111 72,000.00 confirmed their debt and waived any action on
02/16/98
account thereof. To quote said clause:
87/98/108 84,000.00 02/13/98
87/98/152 320,000.00 03/02/98 Confirmation of Debt The BORROWER
hereby confirms and accepts that as of
87/98/075 150,000.00 01/30/98
December 8, 1999, its outstanding principal
87/98/211 32,000.00 indebtedness to the BANK under the Agreement
03/26/98
and the Notes amount to ONE HUNDRED
87/98/071 110,000.00 01/29/98
FIFTY[-]FIVE MILLION THREE HUNDRED
87/98/107 135,000.00 SIXTY[-]FOUR
02/13//98 THOUSAND EIGHT
HUNDRED PESOS (PHP 155,364,800.00)
87/98/100 75,000.00 02/12/98
exclusive of interests, service and penalty
charges (the Indebtedness) and further confirms
87/98/197 195,000.00 03/19/98
the correctness, legality, collectability and
87/97/761 60,000.00 enforceability
09/26/97 of the Indebtedness. The
BORROWER unconditionally waives any
87/97/768 30,000.00 09/29/97
action, demand or claim that they may otherwise
87/97/767 180,000.00 have to dispute the amount of the Indebtedness
09/29/97
as of the date specified in this Section, or the
87/97/970 110,000.00 12/29/97
collectability and enforceability thereof. It is the
understanding of the parties that the
87/97/747 50,000.00 09/22/97
BORROWERs acknowledgment, affirmation,
87/96/944 605,000.00 and waiver herein are material considerations for
12/19/97
the BANKs agreeing to restructure the
87/98/191 470,000.00 03/16/98
Indebtedness which would have already become
 due and payable as of the above date under the
terms of the Agreement and the Notes.[9]
The restructured
(P155,364,800.00) is the sum of the following
figures: (1) P150,364,800.00, which is the value
of the US$3,632,000.00 loan as redenominated
under the above-mentioned exchange rate of
US$1=P41.40; and (2) P5,000,000.00,
additional loan given to the spouses Tiu to
update their interest payments.[10]
Under the same Restructuring
Agreement, the parties declared that the loan
obligation to be restructured (after deducting
the dacion price of properties ceded by the Tiu
spouses and adding: [1] the taxes, registration
fees and other expenses advanced by Union
Bank in registering the Deeds of Dation in
Payment; and [2] other fees and charges incurred
by the Indebtedness) is one hundred four million
six hundred sixty-eight thousand seven hundred
forty-one pesos (P104,668,741.00)
restructured amount).[11] The Deeds of Dation in
Payment referred to are the following:
1. Dation of the Labangon properties Deed
executed by Juanita Tiu, the mother of
respondent Rodolfo Tiu, involving ten parcels of
land with improvements located in Labangon,
Cebu City and with a total land area of 3,344
square meters, for the
of P25,130,000.00. The Deed states that these
properties shall be leased to the Tiu spouses at a
monthly rate of P98,000.00 for a period of two
years. [12]
2. Dation of the Mandaue property Deed
executed by the spouses Tiu involving one
parcel of land with improvements located in A.S.
amount Fortuna St., Mandaue City, covered by TCT No.
T-31604 and with a land area of 2,960 square
meters, for the amount of P36,080,000.00. The
Deed states that said property shall be leased to
the Tiu spouses at a monthly rate of P150,000.00
an for a period of two years.[13]
As likewise provided in the
Restructuring Agreement, the spouses Tiu
executed a Real Estate Mortgage in favor of
Union Bank over their residential property
inclusive of lot and improvements located at P.
Burgos St., Mandaue City, covered by TCT No.
T-11951 with an area of 3,096 square meters.[14]
The spouses Tiu undertook to pay the
total restructured amount (P104,668,741.00) via
three loan facilities (payment schemes).
(total The spouses Tiu claim to have made the
following payments: (1) P15,000,000.00
on August 3, 1999; and (2)
another P13,197,546.79 as of May 8,
2001. Adding the amounts paid under the Deeds
of Dation in Payment, the spouses Tiu postulate
that their payments added up to P89,407,546.79.
[15]
amount Asserting that the spouses Tiu failed to
comply with the payment schemes set up in the
Restructuring Agreement, Union Bank initiated
extrajudicial foreclosure proceedings on the
residential property of the spouses Tiu, covered
by TCT No. T-11951. The property was to be
sold at public auction on July 18, 2002.
 The spouses Tiu, together with Juanita The spouses Tiu allege that the
T. Tiu, Rosalinda T. King, Rufino T. Tiu, Rosalie foreclosure sale of the mortgaged properties was
T. Young and Rosenda T. Tiu, filed with the invalid, as the loans have already been fully
Regional Trial Court (RTC) of Mandaue City a paid. They also allege that they are not the
Complaint seeking to have the Extrajudicial owners of the improvements constructed on the
Foreclosure declared null and void. The case lot because the real owners thereof are their co-
was docketed as Civil Case No. MAN-4363. petitioners, Juanita T. Tiu, Rosalinda T. King,
[16]
Named as defendants were Union Bank and Rufino T. Tiu, Rosalie T. Young and Rosenda T.
Sheriff IV Veronico C. Ouano (Sheriff Oano) of Tiu.[19]
Branch 55, RTC, Mandaue City. Complainants
therein prayed for the following: (1) that the The spouses Tiu further claim that prior
spouses Tiu be declared to have fully paid their to the signing of the Restructuring Agreement,
obligation to Union Bank; (2) that defendants be they entered into a Memorandum of Agreement
permanently enjoined from proceeding with the with Union Bank whereby the former deposited
auction sale; (3) that Union Bank be ordered to with the latter several certificates of shares of
return to the spouses Tiu their properties as stock of various companies and four certificates
listed in the Complaint; (4) that Union Bank be of title of various parcels of land located in
ordered to pay the plaintiffs the sum Cebu. The spouses Tiu claim that these
of P10,000,000.00 as moral properties have not been subjected to any lien in
damages, P2,000,000.00 as exemplary favor of Union Bank, yet the latter continues to
damages, P3,000,000.00 as attorneys fees hold on to these properties and has not returned
and P500,000.00 as expenses of litigation; and the same to the former.[20]
(5) a writ of preliminary injunction or temporary
restraining order be issued enjoining the public On the other hand, Union Bank claims
[17]
auction sale to be held on July 18, 2002. that the Restructuring Agreement was
voluntarily and validly entered into by both
The spouses Tiu claim that from the parties. Presenting as evidence the Warranties
beginning the loans were in pesos, not in embodied in the Real Estate Mortgage, Union
dollars. Their office clerk, Lilia Gutierrez, Bank contends that the foreclosure of the
testified that the spouses Tiu merely received the mortgage on the residential property of the
peso equivalent of their US$3,632,000.00 loan spouses Tiu was valid and that the
at the rate of US$1=P26.00. The spouses Tiu improvements thereon were absolutely owned
further claim that they were merely forced to by them. Union Bank denies receiving
sign the Restructuring Agreement and take up an certificates of shares of stock of various
additional loan of P5,000,000.00, the proceeds companies or the four certificates of title of
of which they never saw because this amount various parcels of land from the spouses
was immediately applied by Union Bank to Tiu. However, Union Bank also alleges that even
interest payments.[18] if said certificates were in its possession it is
authorized under the Restructuring Agreement to
retain any and all properties of the debtor as therefore should be excluded from the real
[21]
security for the loan. properties covered by the real estate
mortgage. On January 6, 2005, the spouses Tiu
The RTC issued a Temporary filed their own Motion for Partial
[22] [29]
Restraining Order and, eventually, a Writ of Reconsideration and/or New Trial. They
[23]
Preliminary Injunction preventing the sale of alleged that the trial court failed to rule on their
[24]
the residential property of the spouses Tiu. fourth cause of action wherein they mentioned
that they turned over the following titles to
On December 16, 2004, the RTC Union Bank: TCT Nos. 30271, 116287 and
[25]
rendered its Decision in Civil Case No. MAN- 116288 and OCT No. 0-3538. They also prayed
4363 in favor of Union Bank. The dispositive for a partial new trial and for a declaration that
portion of the Decision read: they have fully paid their obligation to Union
Bank.[30]
WHEREFORE, premises considered,
judgment is hereby rendered dismissing the
Complaint and lifting and setting aside the Writ On January 11, 2005, the spouses Tiu
of Preliminary Injunction. No pronouncement as received from Sheriff Oano a Second Notice of
to damages, attorneys fees and costs of suit.[26] Extra-judicial Foreclosure Sale of Lot No. 639
to be held on February 3, 2005. To prevent the
same, the Tiu spouses filed with the Court of
In upholding the validity of the
Appeals a Petition for Prohibition and Injunction
Restructuring Agreement, the RTC held that the
with Application for TRO/Writ of Preliminary
spouses Tiu failed to present any evidence to
Injunction.[31] The petition was docketed as CA-
prove either fraud or intimidation or any other
G.R. SP No. 00253. The Court of Appeals issued
act vitiating their consent to the same. The exact
a Temporary Restraining Order on January 27,
obligation of the spouses Tiu to Union Bank is
2005.[32]
therefore P104,668,741.00, as agreed upon by
the parties in the Restructuring Agreement. As
On January 19, 2005, the RTC issued an
regards the contention of the spouses Tiu that
Order denying Union Banks Motion for Partial
they have fully paid their indebtedness, the RTC
Reconsideration and the Tiu spouses Motion for
noted that they could not present any detailed
Partial Reconsideration and/or New Trial.[33]
accounting as to the total amount they have paid
after the execution of the Restructuring
[27] Both the spouses Tiu and Union Bank
Agreement.
appealed the case to the Court of Appeals. [34] The
two appeals were given a single docket number,
On January 4, 2005, Union Bank filed a
CA-G.R. CEB-CV No. 00190.Acting on a
Motion for Partial Reconsideration,[28] protesting
motion filed by the spouses Tiu, the Court of
the finding in the body of the December 16,
Appeals consolidated CA-G.R. SP No. 00253
2004 Decision that the residential house on Lot
with CA-G.R. CEB-CV No. 00190.[35]
No. 639 is not owned by the spouses Tiu and
 On April 19, 2005, the Court of Appeals same. By making it appear that the loans were
issued a Resolution finding that there was no originally in dollars, Union Bank overstepped its
need for the issuance of a Writ of Preliminary rights as creditor, and made unwarranted
Injunction as the judgment of the lower court interpretations of the original loan
has been stayed by the perfection of the appeal agreement. According to the Court of Appeals,
[36]
therefrom. the Restructuring Agreement, which purportedly
attempts to create a novation of the original
On May 9, 2005, Sheriff Oano loan, was not clearly authorized by the debtors
proceeded to conduct the extrajudicial and was not supported by any cause or
sale. Union Bank submitted the lone bid consideration. Since the Restructuring
[37]
of P18,576,000.00. On June 14, 2005, Union Agreement is void, the original loan
Bank filed a motion with the Court of Appeals of P94,432,000.00 (representing the amount
praying that Sheriff Oano be ordered to issue a received by the spouses Tiu of US$3,632,000.00
definite and regular Certificate of Sale. using the US$1=P26.00 exchange rate) should
[38]
On July 21, 2005, the Court of Appeals subsist. The Court of Appeals likewise
issued a Resolution denying the Motion and invalidated (1) the P5,000,000.00 charge for
suspending the auction sale at whatever stage, interest in the Restructuring Agreement, for
pending resolution of the appeal and conditioned having been unilaterally imposed by Union
upon the filing of a bond in the amount Bank; and (2) the lease of the properties
[39]
of P18,000,000.00 by the Tiu spouses. The conveyed in dacion en pago, for being against
[40]
Tiu spouses failed to file said bond. public policy. [42]
In sum, the Court of Appeals found
On February 21, 2006, the Court of Union Bank liable to the spouses Tiu in the
Appeals rendered the assailed Joint Decision in amount of P927,546.79. For convenient
CA-G.R. CV No. 00190 and CA-G.R. SP No. reference, we quote relevant portion of the Court
00253. The Court of Appeals dismissed the of Appeals Decision here:
Petition for Prohibition, CA-G.R. SP No. 00253,
on the ground that the proper venue for the same To summarize the obligation of the Tiu
is with the RTC. [41] spouses, they owe Union
Bank P94,432,000.00. The Tiu spouses had
already paid Union Bank the amount
On the other hand, the Court of Appeals of P89,407,546.79. On the other hand, Union
ruled in favor of the spouses Tiu in CA-G.R. CV Bank must return to the Tiu spouses the illegally
collected rentals in the amount
No. 00190. The Court of Appeals held that the of P5,952,000.00. Given these findings, the
loan transactions were in pesos, since there was obligation of the Tiu spouses has already been
supposedly no stipulation the loans will be paid fully paid. In fact, it is the Union Bank that must
return to the Tiu spouses the amount of NINE
in dollars and since no dollars ever exchanged
HUNDRED TWENTY[-]SEVEN THOUSAND
hands. Considering that the loans were in pesos FIVE HUNDRED FORTY[-]SIX PESOS AND
from the beginning, the Court of Appeals SEVENTY[-]NINE CENTAVOS (P927,546.79).
[43]
reasoned that there is no need to convert the

With regard to the ownership of the
improvements on the subject mortgaged
property, the Court of Appeals ruled that it
belonged to respondent Rodolfo Tius father, Jose
Tiu, since 1981. According to the Court of
Appeals, Union Bank should not have relied on
warranties made by debtors that they are the
owners of the property. The appellate court went
on to permanently enjoin Union Bank from
foreclosing the mortgage not only of the
property covered by TCT No. T-11951, but also
any other mortgage over any other property of
the spouses Tiu.[44]
The Court of Appeals likewise found
Union Bank liable to return the certificates of
stocks and titles to real properties of the spouses
Tiu in its possession. The appellate court held
that Union Bank made judicial admissions of
such possession in its Reply to Plaintiffs Request
for Admission.[45] In the event that Union Bank
can no longer return these certificates and titles,
it was mandated to shoulder the cost for their
replacement.[46]
Finally, the Court of Appeals took
judicial notice that before or during the financial
crisis, banks actively convinced debtors to make
dollar loans in the guise of benevolence,
saddling borrowers with loans that ballooned
twice or thrice their original loans. The Court of
Appeals, noting the cavalier way with which
banks exploited and manipulated the situation,
[47]
held Union Bank liable to the spouses Tiu
for P100,000.00 in moral damages, P100,000.00
in exemplary damages, and P50,000.00 in
attorneys fees.[48]
The Court of Appeals disposed of the
case as follows:
WHEREFORE, in view of the foregoing
premises, judgment is hereby rendered by us
permanently enjoining Union Bank from
foreclosing the mortgage of the residential
property of the Tiu spouses which is covered by
Transfer Certificate of Title No. 11951 and from
pursuing other foreclosure of mortgages over
any other properties of the Tiu spouses for the
above-litigated debt that has already been fully
paid. If a foreclosure sale has already been made
over such properties, this Court orders the
cancellation of such foreclosure sale and the
Certificate of Sale thereof if any has been
issued. This Court orders Union Bank to
return to the Tiu spouses the amount of NINE
HUNDRED TWENTY[-]SEVEN THOUSAND
FIVE HUNDRED FORTY[-]SIX PESOS AND
SEVENTY[-]NINE CENTAVOS (P927,546.79)
representing illegally collected rentals. This
Court also orders Union Bank to return to the
Tiu spouses all the certificates of shares of
stocks and titles to real properties of the Tiu
spouses that were deposited to it or, in lieu
thereof, to pay the cost for the replacement and
issuance of new certificates and new titles over
the said properties. This Court finally orders
Union Bank to pay the Tiu spouses ONE
HUNDRED THOUSAND PESOS
(P100,000.00) in moral damages, ONE
HUNDRED THOUSAND PESOS
(P100,000.00) in exemplary damages, FIFTY
THOUSAND PESOS (P50,000.00) in attorneys
fees and cost, both in the lower court and in this
Court.[49]
On June 1, 2006, the Court of Appeals
rendered the assailed Resolution denying Union
Banks Motion for Reconsideration.
Hence, this Petition for Review
on Certiorari, wherein Union Bank submits the
 following issues for the consideration of this THE ALLEGED RENTALS PAID BY
RESPONDENT SPOUSES WITHOUT ANY
Court: FACTUAL BASIS;

1. WHETHER OR NOT THE COURT OF 6. WHETHER OR NOT THE COURT OF

APPEALS COMMITTED GRAVE AND APPEALS COMMITTED GRAVE AND
REVERSIBLE ERROR WHEN IT REVERSIBLE ERROR WHEN IT HELD
CONCLUDED THAT THERE WERE NO WITHOUT ANY FACTUAL BASIS THAT
DOLLAR LOANS OBTAINED BY [THE] TIU THE LOAN OBLIGATION OF TIU SPOUSES
SPOUSES FROM UNION BANK DESPITE HAS BEEN FULLY PAID;
[THE] CLEAR ADMISSION OF
INDEBTEDNESS BY THE BORROWER- 7. WHETHER OR NOT THE COURT OF
MORTGAGOR TIU SPOUSES. APPEALS COMMITTED GRAVE AND
REVERSIBLE ERROR WHEN IT HELD
2. WHETHER OR NOT THE COURT OF WITHOUT ANY FACTUAL BASIS THAT
APPEALS COMMITTED GRAVE AND THE HOUSE INCLUDED IN THE REAL
REVERSIBLE ERROR WHEN IT NULLIFIED ESTATE MORTGAGE DID NOT BELONG TO
THE RESTRUCTURING AGREEMENT THE TIU SPOUSES.
BETWEEN TIU SPOUSES AND UNION
BANK FOR LACK OF CAUSE OR 8. WHETHER OR NOT THE COURT OF
CONSIDERATION DESPITE THE APPEALS COMMITTED GRAVE AND
ADMISSION OF THE BORROWER- REVERSIBLE ERROR IN ORDERING
MORTGAGOR TIU SPOUSES OF THE DUE UNION BANK TO RETURN THE
AND VOLUNTARY EXECUTION OF SAID CERTIFICATES OF SHARES OF STOCK
RESTRUCTURING AGREEMENT. AND TITLES TO REAL PROPERTIES OF TIU
SPOUSES ALLEGEDLY IN THE
3. WHETHER OR NOT THE COURT OF POSSESSION OF UNION BANK.
APPEALS COMMITTED GRAVE AND
REVERSIBLE ERROR WHEN IT 9. WHETHER OR NOT THE COURT OF
PERMANENTLY ENJOINED UNION BANK APPEALS VIOLATED THE DOCTRINES
FROM FORECLOSING THE MORTGAGE AND PRINCIPLES ON APPELLATE
ON THE RESIDENTIAL PROPERTY OF THE JURISDICTION.
TIU SPOUSES DESPITE THE ADMISSION
OF NON-PAYMENT OF THEIR 10. WHETHER OR NOT THE COURT OF
OUTSTANDING LOAN TO THE BANK BY APPEALS COMMITTED GRAVE AND
THE BORROWER-MORTGAGOR TIU REVERSIBLE ERROR IN AWARDING
SPOUSES; DAMAGES AGAINST UNION BANK.[50]

4. WHETHER OR NOT THE COURT OF

APPEALS COMMITTED GRAVE AND Validity of the Restructuring Agreement
REVERSIBLE ERROR WHEN IT FIXED THE
AMOUNT OF THE OBLIGATION OF
RESPONDENT SPOUSES CONTRARY TO As previously discussed, the Court of
THE PROVISIONS OF THE PROMISSORY Appeals declared that the Restructuring
NOTES, RESTRUCTURING AGREEMENT
AND [THE] VOLUNTARY ADMISSIONS BY Agreement is void on account of its being a
BORROWER-MORTGAGOR TIU SPOUSES; failed novation of the original loan
agreements.The Court of Appeals explained that
5. WHETHER OR NOT THE COURT OF
since there was no stipulation that the loans will
APPEALS COMMITTED GRAVE AND
REVERSIBLE ERROR WHEN IT RULED ON be paid in dollars, and since no dollars ever
exchanged hands, the original loan transactions
were in pesos.[51] Proceeding from this premise,
the Court of Appeals held that the Restructuring
Agreement, which was meant to convert the
loans into pesos, was unwarranted.Thus, the
Court of Appeals reasoned that:
Be that as it may, however, since the
loans of the Tiu spouses from Union Bank were
peso loans from the very beginning, there is no
need for conversion thereof. A Restructuring
Agreement should merely confirm the loans, not
add thereto. By making it appear in the
Restructuring Agreement that the loans were
originally dollar loans, Union Bank overstepped
its rights as a creditor and made unwarranted
interpretations of the original loan
agreement. This Court is not bound by such
interpretations made by Union Bank. When one
party makes an interpretation of a contract, he
makes it at his own risk, subject to a subsequent
challenge by the other party and a modification
by the courts. In this case, that party making the
interpretation is not just any party, but a well
entrenched and highly respected bank. The
matter that was being interpreted was also a
financial matter that is within the profound
expertise of the bank. A normal person who does
not possess the same financial proficiency or
acumen as that of a bank will most likely defer
to the latters esteemed opinion, representations
and interpretations. It has been often stated in
our jurisprudence that banks have a fiduciary
duty to their depositors. According to the case
of Bank of the Philippine Islands vs. IAC (G.R.
No. 69162, February 21, 1992), as a business
affected with public interest and because of the
nature of its functions, the bank is under
obligation to treat the accounts of its depositors
with meticulous care, always having in mind the
fiduciary nature of their relationship. Such
fiduciary relationship should also extend to the
banks borrowers who, more often than not, are
also depositors of the bank. Banks are in the
business of lending while most borrowers hardly
know the basics of such business. When
transacting with a bank, most borrowers concede
to the expertise of the bank and consider their
procedures, pronouncements and representations
as unassailable, whether such be true or
not. Therefore, when there is a doubtful banking
transaction, this Court will tip the scales in favor
of the borrower.
Given the above ruling, the
Restructuring Agreement, therefore, between the
Tiu spouses and Union Bank does not operate to
supersede all previous loan documents, as
claimed by Union Bank. But the said
Restructuring Agreement, as it was crafted by
Union Bank, does not merely confirm the
original loan of the Tiu spouses but attempts to
create a novation of the said original loan that is
not clearly authorized by the debtors and that is
not supported by any cause or
consideration. According to Article 1292 of the
New Civil Code, in order that an obligation may
by extinguished by another which substitutes the
same, it is imperative that it be so declared in
unequivocal terms, or that the old and the new
obligations be on every point incompatible with
each other. Such is not the case in this
instance. No valid novation of the original
obligation took place. Even granting arguendo
that there was a novation, the sudden change in
the original amount of the loan to the new
amount declared in the Restructuring Agreement
is not supported by any cause or
consideration. Under Article 1352 of the Civil
Code, contracts without cause, or with unlawful
cause, produce no effect whatever. A contract
whose cause did not exist at the time of the
transaction is void. Accordingly, Article 1297 of
the New Civil Code mandates that, if the new
obligation is void, the original one shall subsist,
unless the parties intended that the former
relation should be extinguished at any
event. Since the Restructuring Agreement is
void and since there was no intention to
extinguish the original loan, the original loan
shall subsist.[52]
Union Bank does not dispute that the
spouses Tiu received the loaned amount of
US$3,632,000.00 in Philippine pesos, not
dollars, at the prevailing exchange rate of
US$1=P26.[53] However, Union Bank claims that
this does not change the true nature of the loan
as a foreign currency loan,[54] and proceeded to
illustrate in its Memorandum that the spouses
Tiu obtained favorable interest rates by opting to
borrow in dollars (but receiving the equivalent
peso amount) as opposed to borrowing in pesos.
[55]
We agree with Union Bank on this
point. Although indeed, the spouses Tiu received
peso equivalents of the borrowed amounts, the
loan documents presented as evidence, i.e., the
promissory notes,[56] expressed the amount of the
loans in US dollars and not in any other
currency. This clearly indicates that the spouses
Tiu were bound to pay Union Bank in dollars,
the amount stipulated in said loan
documents. Thus, before the Restructuring
Agreement, the spouses Tiu were bound to pay
Union Bank the amount of US$3,632,000.00
plus the interest stipulated in the promissory
notes, without converting the same to pesos. The
spouses Tiu, who are in the construction
business and appear to be dealing primarily in
Philippine currency, should therefore purchase
the necessary amount of dollars to pay Union
Bank, who could have justly refused payment in
any currency other than that which was
stipulated in the promissory notes.
We disagree with the finding of the
Court of Appeals that the testimony of Lila
Gutierrez, which merely attests to the fact that
the spouses Tiu received the peso equivalent of
their dollar loan, proves the intention of the
parties that such loans should be paid in pesos. If
such had been the intention of the parties, the
promissory notes could have easily indicated the
same.
Such stipulation of payment in dollars is
not prohibited by any prevailing law or
jurisprudence at the time the loans were taken.
In this regard, Article 1249 of the Civil Code
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.
Although the Civil Code took effect on August
30, 1950, jurisprudence had upheld[57] the
continued effectivity of Republic Act No. 529,
which took effect earlier on June 16,
[58]
1950. Pursuant to Section 1 of Republic Act
No. 529, any agreement to pay an obligation in a
currency other than the Philippine currency is
void; the most that could be demanded is to pay
said obligation in Philippine currency to be
measured in the prevailing rate of exchange at
the time the obligation was incurred. [59] On June
19, 1964, Republic Act No. 4100 took effect,
modifying Republic Act No. 529 by providing
for several exceptions to the nullity of
agreements to pay in foreign currency.[60]
On April 13, 1993, Central Bank
[61]
Circular No. 1389 was issued, lifting foreign
exchange restrictions and liberalizing trade in
foreign currency. In cases of foreign borrowings
and foreign currency loans, however, prior
Bangko Sentral approval was required. On July
5, 1996, Republic Act No. 8183 took effect,
[62]
expressly repealing Republic Act No. 529 in
Section 2[63] thereof. The same statute also
explicitly provided that parties may agree that
the obligation or transaction shall be settled in a
currency other than Philippine currency at the
[64]
time of payment.
Although the Credit Line Agreement
between the spouses Tiu and Union Bank was
[65]
entered into on November 21, 1995,
agreement to pay in foreign currency was still
considered void under Republic Act No. 529, the
[66]
actual loans, as shown in the promissory
notes, were taken out from September 22, 1997
to March 26, 1998, during which time Republic
Act No. 8183 was already in effect. In United
[67]
Coconut Planters Bank v. Beluso,
that:
[O]pening a credit line does not create a credit
transaction of loan or mutuum, since the former
is merely a preparatory contract to the contract
of loan or mutuum. Under such credit line, the
bank is merely obliged, for the considerations
specified therefor, to lend to the other party
amounts not exceeding the limit provided. The
credit transaction thus occurred not when the
credit line was opened, but rather when the
credit line was availed of. x x x.[68]
Having established that Union Bank and
the spouses Tiu validly entered into dollar loans,
the conclusion of the Court of Appeals that there
were no dollar loans to novate into peso loans
must necessarily fail.
Similarly, the Court of
pronouncement that the novation was not
supported by any cause or consideration is
likewise incorrect. This conclusion suggests that
when the parties signed the Restructuring
Agreement, Union Bank got something out of
nothing or that the spouses Tiu received no
benefit from the restructuring of their existing
loan and was merely taken advantage of by the
bank. It is important to note at this point that in
the determination of the nullity of a contract
based on the lack of consideration, the debtor
has the burden to prove the same. Article 1354
when the of the Civil Code provides that [a]though the
cause is not stated in the contract, it is presumed
that it exists and is lawful, unless the debtor
proves the contrary.
In the case at bar, the Restructuring
Agreement was signed at the height of the
we held financial crisis when the Philippine peso was
rapidly depreciating. Since the spouses Tiu were
bound to pay their debt in dollars, the cost of
purchasing the required currency was likewise
swiftly increasing. If the parties did not enter
into the Restructuring Agreement in December
1999 and the peso continued to deteriorate, the
ability of the spouses Tiu to pay and the ability
of Union Bank to collect would both have
immensely suffered. As shown by the evidence
presented by Union Bank, the peso indeed
continued to deteriorate, climbing to
[69]
US$1=P50.01 on December 2000. Hence, in
order to ensure the stability of the loan
agreement, Union Bank and the spouses Tiu
agreed in the Restructuring Agreement to peg
the principal loan at P150,364,800.00 and the
unpaid interest at P5,000,000.00.
Appeals
Before this Court, the spouses Tiu
belatedly argue that their consent to the
Restructuring Agreement was vitiated by fraud
and mistake, alleging that (1) the Restructuring
Agreement did not take into consideration their
substantial payment in the amount
of P40,447,185.60 before its execution; and (2)
 the dollar loans had already been redenominated I think it was on the year 1997.
in 1997 at the rate of US$1=P26.34.[70] Could [you] still remember what was then the
prevailing exchange rate between the dollar and
We have painstakingly perused over the the peso at that year 1997?
records of this case, but failed to find any
Yes. I have here the list of the dollar exchange rate
documentary evidence of the alleged payment from January 1987 (sic). It was P26.34 per
of P40,447,185.60 before the execution of the dollar.[75]
Restructuring Agreement. In paragraph 16 of
their Amended Complaint, the spouses Tiu
Neither party presented any
alleged payment of P40,447,185.60 for
documentary evidence of the alleged
interests before the conversion of the dollar loan.
redenomination in 1997. Respondent Rodolfo
[71]
This was specifically denied by Union Bank
Tiu did not even mention it in his
in paragraph 5 of its Answer with Counterclaim.
testimony. Furthermore, Hojas was obviously
[72]
Respondent Rodolfo Tiu testified that they
uncertain in his statement that said
made 50 million plus in cash payment plus other
redenomination was made in 1997.
monthly interest payments,[73] and identified a
computation of payments dated July 17, 2002
As pointed out by the trial court, the
signed by himself.[74] Such computation,
Restructuring Agreement, being notarized, is a
however, was never formally offered in evidence
public document enjoying a prima
and was in any event, wholly self-serving.
facie presumption of authenticity and due
execution.Clear and convincing evidence must
As regards the alleged redenomination
be presented to overcome such legal
of the same dollar loans in 1997 at the rate of [76]
presumption. The spouses Tiu, who attested
US$1=P26.34, the spouses Tiu merely relied on
before the notary public that the Restructuring
the following direct testimony of Herbert Hojas,
Agreement is their own free and voluntary act
one of the witnesses of Union Bank:
and deed,[77] failed to present sufficient evidence
to prove otherwise. It is difficult to believe that
Q: Could you please describe what kind of loan was the
loan of the spouses Rodolfo Tiu, the plaintiffs in the spouses Tiu, veteran businessmen who
this case? operate a multi-million peso company, would
sign a very important document without fully
A: It was originally an FCDU, meaning a dollar loan.
understanding its contents and consequences.
Q: What happened to this FCDU loan or dollar loan?
This Court therefore rules that the
A: The dollar loan was re-denominated in view of the
very unstable exchange of the dollar and the Restructuring Agreement is valid and, as such, a
peso at that time, valid and binding novation of loans of the
spouses Tiu entered into from September 22,
Q: Could you still remember what year this account was
re-denominated from dollar to peso? 1997 to March 26, 1998 which had a total
amount of US$3,632,000.00.

Validity of the Foreclosure of Mortgage
The spouses Tiu challenge the validity
of the foreclosure of the mortgage on two
grounds, claiming that: (1) the debt had already
been fully paid; and (2) they are not the owners
of the improvements on the mortgaged property.
(1) Allegation of full payment of the
mortgage debt
In the preceding discussion, we have
ruled that the Restructuring Agreement is a valid
and binding novation of loans of the spouses Tiu
entered into from September 22, 1997 to March
26, 1998 in the total amount of
US$3,632,000.00. Thus, in order that the
spouses Tiu can be held to have fully paid their
loan obligation, they should present evidence
showing their payment of the total restructured
amount under the Restructuring Agreement
which was P104,668,741.00. As we have
discussed above, however, while respondent
Rodolfo Tiu appeared to have identified during
his testimony a computation dated July 17, 2002
of the alleged payments made to Union Bank,
[78]
the same was not formally offered in
evidence. Applying Section 34, Rule 132[79] of
the Rules of Court, such computation cannot be
considered by this Court. We have held that a
formal offer is necessary because judges are
mandated to rest their findings of facts and their
judgment only and strictly upon the evidence
offered by the parties at the trial. It has several
functions: (1) to enable the trial judge to know
the purpose or purposes for which the proponent
is presenting the evidence; (2) to allow opposing
parties to examine the evidence and object to its
admissibility; and (3) to facilitate review by the
appellate court, which will not be required to
review documents not previously scrutinized by
the trial court.[80]Moreover, even if such
computation were admitted in evidence, the
same is self-serving and cannot be given
probative weight. In the case at bar, the records
do not contain even a single receipt evidencing
payment to Union Bank.
The Court of Appeals, however, held
that several payments made by the spouses Tiu
had been admitted by Union Bank. Indeed,
Section 11, Rule 8 of the Rules of Court
provides that an allegation not specifically
denied is deemed admitted. In such a case, no
further evidence would be required to prove the
antecedent facts. We should therefore examine
which of the payments specified by the spouses
Tiu in their Amended Complaint[81] were not
specifically denied by Union Bank.
The allegations of payment are made in
paragraphs 16 to 21 of the Amended Complaint:
16. Before conversion of the dollar loan
into a peso loan[,] the spouses Tiu had already
paid the defendant bank the amount of
P40,447,185.60 for interests;
17. On August 3, 1999 and August 12,
1999, plaintiffs made payments in the amount
of P15,000,000.00;
18. In order to lessen the obligation of
plaintiffs, the mother of plaintiff Rodolfo T. Tiu,
plaintiff Juanita T. Tiu, executed a deed of
dacion in payment in favor of defendant
involving her 10 parcels of land located in
Labangon, Cebu City for the amount
of P25,130,000.00. Copy of the deed was
attached to the original complaint as Annex C;
 19. For the same purpose, plaintiffs
spouses Tiu also executed a deed of dacion in
payment of their property located at A.S.
Fortuna St., Mandaue City for the amount
of P36,080,000.00.Copy of the deed was
attached to the original complaint as Annex D;
20. The total amount of the two dacions
in payment made by the plaintiffs
was P61,210,000.00;
21. Plaintiffs spouses Tiu also made
other payment of the amount of P13,197,546.79
as of May 8, 2001;[82]
In paragraphs 4 and 5 of their Answer
with Counterclaim,[83] Union Bank specifically
denied the allegation in paragraph 9 of the
Complaint, but admitted the allegations in
paragraphs 17, 18, 19, 20 and 21
thereof. Paragraphs 18, 19 and 20 allege the two
deeds of dacion. However, these instruments
were already incorporated in the computation of
the outstanding debt (i.e., subtracted from the
confirmed debt of P155,364,800.00), as can be
gleaned from the following provisions in the
Restructuring Agreement:
a.) The loan obligation to the BANK to be
restructured herein after deducting from the
Indebtedness of the BORROWER the dacion
price of the properties subject of the Deeds of
Dacion and adding to the Indebtedness all the
taxes, registration fees and other expenses
advanced by the bank in registering the Deeds of
Dacion, and also adding to the Indebtedness the
interest, and other fees and charges incurred by
the Indebtedness, amounts to ONE HUNDRED
FOUR MILLION SIX HUNDRED SIXTY-
EIGHT THOUSAND SEVEN HUNDRED
FORTY-ONE PESOS (PHP104,668,741.00) (the
TOTAL RESTRUCTURED AMOUNT).[84]
As regards the allegations of cash
payments in paragraphs 17 and 21 of the
Amended Complaint, the date of the alleged
payment is critical as to whether they were
included in the Restructuring Agreement. The
payment of P15,000,000.00 alleged in paragraph
17 of the Amended Complaint was supposedly
made on August 3 and 12, 1999. This payment
was before the date of execution of the
Restructuring Agreement on December 21,
1999, and is therefore already factored into the
restructured obligation of the spouses.[85] On the
other hand, the payment of P13,197,546.79
alleged in paragraph 21 of the Amended
Complaint was dated May, 8, 2001. Said
payment cannot be deemed included in the
computation of the spouses Tius debt in the
Restructuring Agreement, which was assented to
more than a year earlier. This amount
(P13,197,546.79) is even absent[86] in the
computation of Union Bank of the outstanding
debt, in contrast with the P15,000,000.00
payment which is included[87] therein. Union
Bank did not explain this discrepancy and
merely relied on the spouses Tius failure to
formally offer supporting evidence. Since this
payment of P13,197,546.79 on May 8, 2001 was
admitted by Union Bank in their Answer with
Counterclaim, there was no need on the part of
the spouses Tiu to present evidence on the
same. Nonetheless, if we subtract this figure
from the total restructured amount
(P104,668,741.00) in the Restructuring
Agreement, the result is that the spouses Tiu still
owe Union Bank P91,471,194.21.
(2) Allegation of third party ownership
of the improvements on the mortgaged lot
The Court of Appeals, taking into
consideration its earlier ruling that the loan was
already fully paid, permanently enjoined Union
Bank from foreclosing the mortgage on the
property covered by Transfer Certificate of Title
No. 11951 (Lot No. 639) and from pursuing
other foreclosure of mortgages over any other
properties of the spouses Tiu. The Court of
Appeals ruled:
The prayer, therefore, of the Tiu spouses
to enjoin the foreclosure of the real estate
mortgage over their residential property has
merit. The loan has already been fully paid. It
should also be noted that the house constructed
on the residential property of the Tiu spouses is
not registered in the name of the Tiu spouses,
but in the name of Jose Tiu (Records, pp. 127-
132), the father of appellant and petitioner
Rodolfo Tiu, since 1981. It had been alleged by
the Tiu spouses that Jose Tiu died on December
18, 1983, and, that consequently upon his death,
Juanita T. Tiu, Rosalinda T. King, Rufino T. Tiu,
Rosalie T. Young and Rosenda T. Tiu became
owners of the house (Records, p. 116). This
allegation has not been substantially denied by
Union Bank. All that the Union Bank presented
to refute this allegation are a Transfer Certificate
of Title and a couple of Tax Declarations which
do not indicate that a residential house is titled
in the name of the Tiu spouses. In fact, in one of
the Tax Declarations, the market value of the
improvements is worth only
P3,630.00. Certainly, Union Bank should have
been aware that this Tax Declaration did not
cover the residential house. Union Bank should
also not rely on warranties made by debtors that
they are the owners of the property. They should
investigate such representations. The courts have
made consistent rulings that a bank, being in the
business of lending, is obligated to verify the
true ownership of the properties mortgaged to
them. Consequently, this Court permanently
enjoins Union Bank from foreclosing the
mortgage of the residential property of the Tiu
spouses which is covered by Transfer Certificate
of Title No. 11951 and from pursuing other
foreclosure of mortgages over any other
properties of the Tiu spouses. If a foreclosure
sale has already been made over such properties,
this Court orders the cancellation of such
foreclosure sale and the Certificate of Sale
thereof if any has been issued, and the return of
the title to the Tiu spouses.[88]
We disagree. Contrary to the ruling of
the Court of Appeals, the burden to prove the
spouses Tius allegation that they do not own the
improvements on Lot No. 639, despite having
such improvements included in the mortgage is
on the spouses Tiu themselves. The fundamental
rule is that he who alleges must prove. [89] The
allegations of the spouses Tiu on this matter,
which are found in paragraphs 35 to 39 [90] of
their Amended Complaint, were specifically
denied in paragraph 9 of Union Banks Answer
with Counterclaim.[91]
Upon careful examination of the
evidence, we find that the spouses Tiu failed to
prove that the improvements on Lot No. 639
were owned by third persons. In fact, the
evidence presented by the spouses Tiu merely
attempt to prove that the improvements on Lot
No. 639 were declared for taxes in the name of
respondent Rodolfo Tius father, Jose Tiu, who
allegedly died on December 18, 1983. There
was no effort to show how their co-plaintiffs in
the original complaint, namely Juanita T. Tiu,
Rosalinda T. King, Rufino T. Tiu, Rosalie T.
Young and Rosenda T. Tiu, became co-owners
of the house. The spouses Tiu did not present
evidence as to (1) who the heirs of Jose Tiu are;
(2) if Juanita T. Tiu, Rosalinda T. King, Rufino
T. Tiu, Rosalie T. Young and Rosenda T. Tiu are
indeed included as heirs; and (3) why petitioner
Rodolfo Tiu is not included as an heir despite
being the son of Jose Tiu. No birth certificate of
the alleged heirs, will of the deceased, or any
other piece of evidence showing judicial or
extrajudicial settlement of the estate of Jose Tiu
was presented.
In light of the foregoing, this Court
therefore sets aside the ruling of the Court of
Appeals permanently enjoining Union Bank
from foreclosing the mortgage on Lot No. 639,
including the improvements thereon.
Validity of Alleged Rental Payments on
the Properties Conveyed to the Bank
via Dacion en Pago
The Court of Appeals found the lease
contracts over the properties conveyed to Union
Bank via dacion en pago to be void for being
against public policy. The appellate court held
that since the General Banking Law of
2000[92] mandates banks to immediately dispose
of real estate properties that are not necessary
for its own use in the conduct of its business,
banks should not enter into two-year contracts of
lease over properties paid to them
through dacion.[93] The Court of Appeals thus
ordered Union Bank to return the rentals it
collected. To determine the amount of rentals
paid by the spouses Tiu to Union Bank, the
Court of Appeals simply multiplied the monthly
rental stipulated in the Restructuring Agreement
by the stipulated period of the lease agreement:
For the Labangon property, the Tiu
spouses paid rentals in the amount
of P98,000.00 per month for two years, or a total
amount of P2,352,000.00. For the A.S. Fortuna
property, the Tiu spouses paid rentals in the
amount of P150,000.00 per month for two years,
or a total amount of P3,600,000.00. The total
amount in rentals paid by the Tiu spouses to
Union Bank is FIVE MILLION NINE
HUNDRED FIFTY- TWO THOUSAND PESOS
(P5,952,000.00). This Court finds that the return
of this amount to the Tiu spouses is called for
since it will better serve public policy. These
properties that were given by the Tiu spouses to
Union Bank as payment should not be used by
the latter to extract more money from the
former. This situation is analogous to having a
debtor pay interest for a debt already
paid. Instead of leasing the properties, Union
Bank should have instructed the Tiu spouses to
vacate the said properties so that it could dispose
of them.[94]
The Court of Appeals committed a
serious error in this regard. As pointed out by
petitioner Union Bank, the spouses Tiu did not
present any proof of the alleged rental
payments. Not a single receipt was formally
offered in evidence. The mere stipulation in a
contract of the monthly rent to be paid by the
lessee is certainly not evidence that the same has
been paid. Since the spouses Tiu failed to prove
their payment to Union Bank of the amount
of P5,952,000.00, we are constrained to reverse
the ruling of the Court of Appeals ordering its
return.
Even assuming arguendo that the
spouses Tiu had duly proven that it had paid rent
to Union Bank, we nevertheless disagree with
the finding of the Court of Appeals that it is
against public policy for banks to enter into two-
year contracts of lease of properties ceded to
them through dacion en pago. The provisions of
law cited by the Court of Appeals, namely
Sections 51 and 52 of the General Banking Law
of 2000, merely provide:
SECTION 51. Ceiling on Investments in
Certain Assets. Any bank may acquire real estate
as shall be necessary for its own use in the
conduct of its business: Provided, however, That
the total investment in such real estate and
improvements thereof, including bank
equipment, shall not exceed fifty percent (50%)
of combined capital accounts: Provided, further,
That the equity investment of a bank in another
corporation engaged primarily in real estate shall
be considered as part of the bank's total
investment in real estate, unless otherwise
provided by the Monetary Board.
SECTION 52. Acquisition of Real
Estate by Way of Satisfaction of Claims.
Notwithstanding the limitations of the preceding
Section, a bank may acquire, hold or convey real
property under the following circumstances:
52.1. Such as shall be mortgaged to it in
good faith by way of security for debts;
52.2. Such as shall be conveyed to it in
satisfaction of debts previously contracted in the
course of its dealings; or
52.3. Such as it shall purchase at sales
under judgments, decrees, mortgages, or trust
deeds held by it and such as it shall purchase to
secure debts due it.
Any real property acquired or held
under the circumstances enumerated in the
above paragraph shall be disposed of by the
bank within a period of five (5) years or as may
be prescribed by the Monetary Board: Provided,
however, That the bank may, after said period,
continue to hold the property for its own use,
subject to the limitations of the preceding
Section.
Section 52.2 contemplates a dacion en
pago. Thus, Section 52 undeniably gives banks
five years to dispose of properties conveyed to
them in satisfaction of debts previously
contracted in the course of its dealings, unless
another period is prescribed by the Monetary
Board. Furthermore, there appears to be no legal
impediment for a bank to lease the real
properties it has received in satisfaction of debts,
within the five-year period that such bank is
allowed to hold the acquired realty.
We do not dispute the interpretation of
the Court of Appeals that the purpose of the law
is to prevent the concentration of land holdings
in a few hands, and that banks should not be
allowed to hold on to the properties
contemplated in Section 52 beyond the five-year
period unless such bank has exerted its best
efforts to dispose of the property in good faith
but failed. However, inquiries as to whether the
banks exerted best efforts to dispose of the
property can only be done if said banks fail to
dispose of the same within the period
provided. Such inquiry is furthermore irrelevant
to the issues in the case at bar.
Order to Return Certificates Allegedly
in Union Banks Possession
In the Amended Complaint, the spouses
Tiu alleged[95] that they delivered several
certificates and titles to Union Bank pursuant to
a Memorandum of Agreement. These certificates
and titles were not subjected to any lien in favor
of Union Bank, but the latter allegedly continued
to hold on to said properties.
The RTC failed to rule on this issue. The
Court of Appeals, tackling this issue for the first
time, ruled in favor of the Tiu spouses and
ordered the return of these certificates and
titles. The appellate court added that if Union
Bank can no longer return these certificates or
titles, it should shoulder the cost for their
replacement.[96]
 Union Bank, asserting that the
Memorandum of Agreement did not, in fact,
push through, denies having received the subject
certificates and titles. Union Bank added that
even assuming arguendo that it is in possession
of said documents, the Restructuring Agreement
itself allows such possession.[97]
The evidence on hand lends credibility
to the allegation of Union Bank that the
Memorandum of Agreement did not push
through. The copy of the Memorandum of
Agreement attached by the spouses Tiu
themselves to their original complaint did not
bear the signature of any representative from
Union Bank and was not notarized.[98]
We, however, agree with the finding of
the Court of Appeals that despite the failure of
the Memorandum of Agreement to push through,
the certificates and titles mentioned therein do
appear to be in the possession of Union
Bank. As held by the Court of Appeals:
Lastly, this Court will order, as it hereby
orders, Union Bank to return to the Tiu spouses
all the certificates of shares of stocks and titles
to real properties of the Tiu spouses in its
possession. Union Bank cannot deny possession
of these items since it had made judicial
admissions of such possession in their document
entitled Reply to Plaintiffs request for
Admission (records, pp. 216-217). While in that
document, Union Bank only admitted to the
possession of four real estate titles, this Court is
convinced that all the certificates and titles
mentioned in the unconsummated Memorandum
of Agreement (Records, pp. 211-213) were given
by the Tiu spouses to Union Bank for
appraisal. This finding is further bolstered by the
admission of the Union Bank that it kept the
titles for safekeeping after it rejected the
Memorandum of Agreement. Since Union Bank
rejected these certificates and titles of property,
it should return the said items to the Tiu
spouses. If Union Bank can no longer return
these certificates and titles or if it has misplaced
them, it shall shoulder the cost for the
replacement and issuance of new certificates and
new titles over the said properties.[99]
As regards Union Banks argument that
it has the right to retain said documents pursuant
to the Restructuring Agreement, it is referring to
paragraph 11(b), which provides that:
11. Effects of Default When the BORROWER is
in default, such default shall have the following
effects, alternative, concurrent and cumulative
with each other:
xxxx
(b) The BANK shall be entitled to all
the remedies provided for and further shall have
the right to effect or apply against the partial or
full payment of any and all obligations of the
BORROWER under this Restructuring
Agreement any and all moneys or other
properties of the BORROWER which, for any
reason, are or may hereafter come into the
possession of the Bank or the Banks agent. All
such moneys or properties shall be deemed in
the BANKs possession as soon as put in transit
to the BANK by mail or carrier.[100]
In the first place, notwithstanding the
foregoing provision, there is no clear intention
on the part of the spouses Tiu to deliver the
certificates over certain shares of stock and real
properties as security for their debt. From the
terms of the Memorandum of Agreement, these
certificates were surrendered to Union Bank in
order that the said properties described therein
be given their corresponding loan values
required for the restructuring of the spouses Tius
outstanding obligations. However, in the event
the parties fail to agree on the valuation of the
subject properties, Union Bank agrees to release
[101]
the same. As Union Bank itself vehemently
alleges, the Memorandum of Agreement was not
consummated. Moreover, despite the fact that
the Bank was aware, or in possession, of these
[102]
certificates, at the time of execution of the
Restructuring Agreement, only the mortgage
over the real property covered by TCT No. T-
11951 was expressly mentioned as a security in
the Restructuring Agreement. In fact, in its
Reply to Request for Admission,[103] Union Bank
admitted that (1) the titles to the real properties
were submitted to it for appraisal but were
subsequently rejected, and (2) no real estate
mortgages were executed over the said
properties. There being no agreement that these
properties shall secure respondents obligation,
Union Bank has no right to retain said
certificates.
Assuming arguendo that paragraph
11(b) of the Restructuring Agreement indeed
allows the retention of the certificates (submitted
to the Bank ostensibly for safekeeping and
appraisal) as security for spouses Tius debt,
Union Banks position still cannot be upheld.
Insofar as said provision permits Union Bank to
apply properties of the spouses Tiu in its
possession to the full or partial payment of the
latters obligations, the same appears to impliedly
allow Union Bank to appropriate these
properties for such purpose.However, said
provision cannot be validly applied to the
subject certificates and titles without violating
the prohibition against pactum
commissorium contained in Article 2088 of the
Civil Code, to the effect that [t]he creditor
cannot appropriate the things given by way of
pledge or mortgage, or dispose of them[;] [a]ny
stipulation to the contrary is null and
void. Applicable by analogy to the present case
is our ruling in Nakpil v. Intermediate Appellate
Court,[104] wherein property held in trust was
ceded to the trustee upon failure of the
beneficiary to answer for the amounts owed to
the former, to wit:
For, there was to be automatic appropriation of
the property by Valdes in the event of failure of
petitioner to pay the value of the advances.
Thus, contrary to respondent's manifestations,
all the elements of a pactum commissorium were
present: there was a creditor-debtor
relationship between the parties; the property
was used as security for the loan; and, there
was automatic appropriation by respondent of
Pulong Maulap in case of default of petitioner.
[105]
(Emphases supplied.)
This Court therefore affirms the order of
the Court of Appeals for Union Bank to return to
the spouses Tiu all the certificates of shares of
stock and titles to real properties that were
submitted to it or, in lieu thereof, to pay the cost
for the replacement and issuance of new
certificates and new titles over the said
properties.
Validity of the Award of Damages
The Court of Appeals awarded damages
in favor of the spouses Tiu based on its taking
judicial notice of the alleged exploitation by
many banks of the Asian financial crisis, as well
as the foreclosure of the mortgage of the home
of the spouses Tiu despite the alleged full
payment by the latter. As regards the alleged
manipulation of the financial crisis, the Court of
Appeals held:

As a final note, this Court observes the
irregularity in the circumstances [surrounding]
dollar loans granted by banks right before or
during the Asian financial crisis. It is of common
knowledge that many banks, around that time,
actively pursued and convinced debtors to make
dollar loans or to convert their peso loans to
dollar loans allegedly because of the lower
interest rate of dollar loans. This is a highly
suspect behavior on the part of the banks
because it is irrational for the banks to
voluntarily and actively proffer a conversion that
would give them substantially less income. In
the guise of benevolence, many banks were able
to convince borrowers to make dollar loans or to
convert their peso loans to dollar loans. Soon
thereafter, the Asian financial crisis hit, and
many borrowers were saddled with loans that
ballooned to twice or thrice the amount of their
original loans. This court takes judicial notice of
these events or matters which are of public
knowledge. It is inconceivable that the banks
were unaware of the looming Asian financial
crisis. Being in the forefront of the financial
world and having access to financial data that
were not available to the average borrower, the
banks were in such a position that they had a
higher vantage point with respect to the financial
landscape over their average clients. The
cavalier way with which banks exploited and
manipulated the situation is almost too palpable
that they openly and unabashedly struck heavy
blows on the Philippine economy, industries and
businesses. The banks have a fiduciary duty to
their clients and to the Filipino people to be
transparent in their dealings and to make sure
that the latters interest are not prejudiced by the
formers interest. Article 1339 of the New Civil
Code provides that the failure to disclose facts,
when there is a duty to reveal them, as when the
parties are bound by confidential relations,
constitutes fraud. Undoubtedly, the banks and
their clients are bound by confidential
relations. The almost perfect timing of the banks
in convincing their clients to shift to dollar loans
just when the Asian financial crisis struck
indicates that the banks not only failed to
disclose facts to their clients of the looming
crisis, but also suggests of the insidious design
to take advantage of these undisclosed facts. [106]
We have already held that the
foreclosure of the mortgage was warranted
under the circumstances. As regards the alleged
exploitation by many banks of the Asian
financial crisis, this Court rules that the
generalization made by the appellate court is
unfounded and cannot be the subject of judicial
notice. It is axiomatic that good faith is always
presumed unless convincing evidence to the
contrary is adduced. It is incumbent upon the
party alleging bad faith to sufficiently prove
such allegation. Absent enough proof thereof,
the presumption of good faith prevails.[107] The
alleged insidious design of many banks to betray
their clients during the Asian financial crisis is
certainly not of public knowledge. The deletion
of the award of moral and exemplary damages in
favor of the spouses Tiu is therefore in order.
WHEREFORE, the Petition
is PARTIALLY GRANTED. The Joint
Decision of the Court of Appeals in CA-G.R.
CV No. 00190 and CA-G.R. SP No. 00253 dated
February 21, 2006 is
hereby AFFIRMED insofar as it ordered
petitioner Union Bank of the Philippines to
return to the respondent spouses Rodolfo T. Tiu
and Victoria N. Tiu all the certificates of shares
of stock and titles to real properties that were
submitted to it or, in lieu thereof, to pay the cost
for the replacement and issuance of new
certificates and new titles over the said
properties. The foregoing Joint Decision is
hereby SET ASIDE: (1) insofar as it
permanently enjoined Union Bank of the
Philippines from foreclosing the mortgage of the
residential property of respondent spouses
Rodolfo T. Tiu and Victoria N. Tiu which is
covered by Transfer Certificate of Title No.
11951; (2) insofar as it ordered Union Bank of
the Philippines to return to the respondent
spouses Rodolfo T. Tiu and Victoria N. Tiu the
amount of P927,546.79 representing illegally
collected rentals; and (3) insofar as it ordered
Union Bank of the Philippines to pay the
respondent spouses Rodolfo T. Tiu and Victoria
N. Tiu P100,000.00 in moral
damages, P100,000.00 in exemplary
damages, P50,000.00 in attorneys fees and cost,
both in the lower court and in this Court.
No further pronouncement as to costs.
SO ORDERED.
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 certiorariprohibition,
and injunction which sought to annul the order
of Judge Eutropio Migrio 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
 The only issue to be resolved in this case is
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
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. 2 Petitioners, to support their
contention, cite the case of New Pacific Timber
and Supply Co., Inc. v. Seeris 3 where this Court
held through Mr. Justice 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 4 and Roman Catholic
Bishop of Malolos, Inc. vs. Intermediate
Appellate Court, 5 this Court held that
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 6 to support their cause. The
dissenting opinion however does not in any way
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." 7 Moreover, the circumstances in
the Philippine Airlines case are quite different
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, 8 this 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."
WHEREFORE, the petition is DENIED. The
appealed decision is hereby AFFIRMED, with
costs against the petitioners.
SO ORDERED.
Narvasa, C.J., Regalado and Nocon, JJ., concur.