Issue of Means of Payment

G.R. No. L-49188 January 30, 1990 Plaintiffs second and fifth causes of action, and
defendant's counterclaim, are dismissed.
PHILIPPINE AIRLINES, INC., petitioner,
vs. With costs against the defendant. (CA Rollo, p. 18)
HON. COURT OF APPEALS, HON. JUDGE RICARDO D.
GALANO, Court of First Instance of Manila, Branch XIII,
On July 28, 1972, the petitioner filed its appeal with the Court
JAIME K. DEL ROSARIO, Deputy Sheriff, Court of First
of Appeals. The case was docketed as CA-G.R. No. 51079-R.
Instance, Manila, and AMELIA TAN, respondents.

On February 3, 1977, the appellate court rendered its

decision, the dispositive portion of which reads:

IN VIEW WHEREOF, with the modification that

GUTIERREZ, JR., J.:
PAL is condemned to pay plaintiff the sum of
P25,000.00 as damages and P5,000.00 as
Behind the simple issue of validity of an alias writ of execution attorney's fee, judgment is affirmed, with costs.
in this case is a more fundamental question. Should the Court (CA Rollo, p. 29)
allow a too literal interpretation of the Rules with an open
invitation to knavery to prevail over a more discerning and
Notice of judgment was sent by the Court of Appeals to the
just approach? Should we not apply the ancient rule of
trial court and on dates subsequent thereto, a motion for
statutory construction that laws are to be interpreted by the
reconsideration was filed by respondent Amelia Tan, duly
spirit which vivifies and not by the letter which killeth?
opposed by petitioner PAL.

This is a petition to review on certiorari the decision of the

On May 23,1977, the Court of Appeals rendered its resolution
Court of Appeals in CA-G.R. No. 07695 entitled "Philippine
denying the respondent's motion for reconsideration for lack
Airlines, Inc. v. Hon. Judge Ricardo D. Galano, et al.", dismissing
of merit.
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. 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 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 The case was remanded to the trial court for execution and on
commenced a complaint for damages before the Court of First September 2,1977, respondent Amelia Tan filed a motion
Instance of Manila. The case was docketed as Civil Case No. praying for the issuance of a writ of execution of the judgment
71307, entitled Amelia Tan, et al. v. Philippine Airlines, Inc. 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
After trial, the Court of First Instance of Manila, Branch 13,
respondent. The writ was duly referred to Deputy Sheriff
then presided over by the late Judge Jesus P. Morfe rendered
Emilio Z. Reyes of Branch 13 of the Court of First Instance of
judgment on June 29, 1972, in favor of private respondent
Manila for enforcement.
Amelia Tan and against petitioner Philippine Airlines, Inc.
(PAL) as follows:
Four months later, on February 11, 1978, respondent Amelia
Tan moved for the issuance of an alias writ of execution
WHEREFORE, judgment is hereby rendered,
stating that the judgment rendered by the lower court, and
ordering the defendant Philippine Air Lines:
affirmed with modification by the Court of Appeals, remained
unsatisfied.
1. On the first cause of action, to pay to
the plaintiff the amount of P75,000.00
On March 1, 1978, the petitioner filed an opposition to the
as actual damages, with legal interest
motion for the issuance of an alias writ of execution stating
thereon from plaintiffs extra-judicial
that it had already fully paid its obligation to plaintiff through
demand made by the letter of July 20,
the deputy sheriff of the respondent court, Emilio Z. Reyes, as
1967;
evidenced by cash vouchers properly signed and receipted by
said Emilio Z. Reyes.
2. On the third cause of action, to pay to
the plaintiff the amount of P18,200.00,
On March 3,1978, the Court of Appeals denied the issuance of
representing the unrealized profit of
the alias writ for being premature, ordering the executing
10% included in the contract price of
sheriff Emilio Z. Reyes to appear with his return and explain
P200,000.00 plus legal interest thereon
the reason for his failure to surrender the amounts paid to
from July 20,1967;
him by petitioner PAL. However, the order could not be
served upon Deputy Sheriff Reyes who had absconded or
3. On the fourth cause of action, to pay to disappeared.
the plaintiff the amount of P20,000.00
as and for moral damages, with legal
On March 28, 1978, motion for the issuance of a partial alias
interest thereon from July 20, 1 967;
writ of execution was filed by respondent Amelia Tan.

4. On the sixth cause of action, to pay to

On April 19, 1978, respondent Amelia Tan filed a motion to
the plaintiff the amount of P5,000.00
withdraw "Motion for Partial Alias Writ of Execution" with
damages as and for attorney's fee.
Substitute Motion for Alias Writ of Execution. On May 1, 1978,
the respondent Judge issued an order which reads:

Page 1 of 9
Issue of Means of Payment
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 Merchandising Co. v. Court of Tax Appeals, 8 SCRA 59 [1963];
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?
Page 2 of 9
We rule in the affirmative and we quote the respondent
court's decision with approval:
The issuance of the questioned alias writ of
execution under the circumstances here obtaining
is justified because even with the absence of a
Sheriffs return on the original writ, the unalterable
fact remains that such a return is incapable of
being obtained (sic) because the officer who is to
make the said return has absconded and cannot be
brought to the Court despite the earlier order of
the court for him to appear for this purpose. (Order
of Feb. 21, 1978, Annex C, Petition). Obviously,
taking cognizance of this circumstance, the order
of May 11, 1978 directing the issuance of an alias
writ was therefore issued. (Annex D. Petition). The
need for such a return as a condition precedent for
the issuance of an alias writ was justifiably
dispensed with by the court below and its action in
this regard meets with our concurrence. A contrary
view will produce an abhorent situation whereby
the mischief of an erring officer of the court could
be utilized to impede indefinitely the undisputed
and awarded rights which a prevailing party
rightfully deserves to obtain and with dispatch.
The final judgment in this case should not indeed
be permitted to become illusory or incapable of
execution for an indefinite and over extended
period, as had already transpired. (Rollo, pp. 35-
36)
Judicium non debet esse illusorium; suum effectum habere
debet (A judgment ought not to be illusory it ought to have its
proper effect).
Indeed, technicality cannot be countenanced to defeat the
execution of a judgment for execution is the fruit and end of
the suit and is very aptly called the life of the law (Ipekdjian
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.
Issue of Means of Payment

It should be emphasized that under the initial judgment, deliver such currency, then in the currency which
Amelia Tan was found to have been wronged by PAL. is legal tender in the Philippines.

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.
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.

It is now 1990.
In the meantime, the action derived from the
original obligation shall be held in abeyance.
Almost twenty-two (22) years later, Ms. Tan has not seen a
centavo of what the courts have solemnly declared as
In the absence of an agreement, either express or implied,
rightfully hers. Through absolutely no fault of her own, Ms.
payment means the discharge of a debt or obligation in money
Tan has been deprived of what, technically, she should have
(US v. Robertson, 5 Pet. [US] 641, 8 L. ed. 257) and unless the
been paid from the start, before 1967, without need of her
parties so agree, a debtor has no rights, except at his own
going to court to enforce her rights. And all because PAL did
peril, to substitute something in lieu of cash as medium of
not issue the checks intended for her, in her name.
payment of his debt (Anderson v. Gill, 79 Md.. 312, 29 A 527,
25 LRA 200,47 Am. St. Rep. 402). Consequently, unless
Under the peculiar circumstances of this case, the payment to authorized to do so by law or by consent of the obligee a
the absconding sheriff by check in his name did not operate public officer has no authority to accept anything other than
as a satisfaction of the judgment debt. 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,
In general, a payment, in order to be effective to discharge an
operate as a discharge of the judgment debt.
obligation, must be made to the proper person. Article 1240
of the Civil Code provides:
Since a negotiable instrument is only a substitute for money
and not money, the delivery of such an instrument does not,
Payment shall be made to the person in whose
by itself, operate as payment (See. 189, Act 2031 on Negs.
favor the obligation has been constituted, or his
Insts.; Art. 1249, Civil Code; Bryan Landon Co. v. American
successor in interest, or any person authorized to
Bank, 7 Phil. 255; Tan Sunco v. Santos, 9 Phil. 44; 21 R.C.L. 60,
receive it. (Emphasis supplied)
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
Thus, payment must be made to the obligee himself or to an is not a valid tender of payment and may be refused receipt
agent having authority, express or implied, to receive the by the obligee or creditor. Mere delivery of checks does not
particular payment (Ulen v. Knecttle 50 Wyo 94, 58 [2d] 446, discharge the obligation under a judgment. The obligation is
111 ALR 65). Payment made to one having apparent authority not extinguished and remains suspended until the payment
to receive the money will, as a rule, be treated as though by commercial document is actually realized (Art. 1249, Civil
actual authority had been given for its receipt. Likewise, if Code, par. 3).
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.
If bouncing checks had been issued in the name of Amelia Tan
609, 20 SO 800,34 LRA 283). The receipt of money due on
and not the Sheriff's, there would have been no payment.
ajudgment by an officer authorized by law to accept it will,
After dishonor of the checks, Ms. Tan could have run after
therefore, satisfy the debt (See 40 Am Jm 729, 25; Hendry v.
other properties of PAL. The theory is that she has received
Benlisa supra; Seattle v. Stirrat 55 Wash. 104 p. 834,24 LRA
no value for what had been awarded her. Because the checks
[NS] 1275).
were drawn in the name of Emilio Z. Reyes, neither has she
received anything. The same rule should apply.
The theory is where payment is made to a person authorized
and recognized by the creditor, the payment to such a person
It is argued that if PAL had paid in cash to Sheriff Reyes, there
so authorized is deemed payment to the creditor. Under
would have been payment in full legal contemplation. The
ordinary circumstances, payment by the judgment debtor in
reasoning is logical but is it valid and proper? Logic has its
the case at bar, to the sheriff should be valid payment to
limits in decision making. We should not follow rulings to
extinguish the judgment debt.
their logical extremes if in doing so we arrive at unjust or
absurd results.
There are circumstances in this case, however, which compel
a different conclusion.
In the first place, PAL did not pay in cash. It paid in cheeks.

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
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.

Page 3 of 9
Issue of Means of Payment

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.
sixty (60) days within which to make a return, to treat the
moneys as their personal finds and to deposit the same in
their private accounts to earn sixty (60) days interest, before
said finds are turned over to the court or judgment creditor
(See Balgos v. Velasco, 108 SCRA 525 [1981]). Quite as easily,
such officers could put up the defense that said checks had
been issued to them in their private or personal capacity.
Without a receipt evidencing payment of the judgment debt,
the misappropriation of finds by such officers becomes clean
and complete. The practice is ingenious but evil as it unjustly
enriches court personnel at the expense of litigants and the
proper administration of justice. The temptation could be far
greater, as proved to be in this case of the absconding sheriff.
The correct and prudent thing for the petitioner was to have
issued the checks in the intended payee's name.
The pernicious effects of issuing checks in the name of a
person other than the intended payee, without the latter's
agreement or consent, are as many as the ways that an artful
mind could concoct to get around the safeguards provided by
the law on negotiable instruments. An angry litigant who
loses a case, as a rule, would not want the winning party to get
what he won in the judgment. He would think of ways to delay
the winning party's getting what has been adjudged in his
favor. We cannot condone that practice especially in cases
where the courts and their officers are involved.1âwphi1 We
rule against the petitioner.
Anent the applicability of Section 15, Rule 39, as follows:

As explained and held by the respondent court: Section 15. Execution of money judgments. — The
officer must enforce an execution of a money
judgment by levying on all the property, real and
... [K]nowing as it does that the intended payment
personal of every name and nature whatsoever,
was for the private party respondent Amelia Tan,
and which may be disposed of for value, of the
the petitioner corporation, utilizing the services of
judgment debtor not exempt from execution, or on
its personnel who are or should be knowledgeable
a sufficient amount of such property, if they be
about the accepted procedures and resulting
sufficient, and selling the same, and paying to the
consequences of the checks drawn, nevertheless,
judgment creditor, or his attorney, so much of the
in this instance, without prudence, departed from
proceeds as will satisfy the judgment. ...
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 the respondent court held:
thereby created a situation which permitted the
said Sheriff to personally encash said checks and
We are obliged to rule that the judgment debt
misappropriate the proceeds thereof to his
cannot be considered satisfied and therefore the
exclusive personal benefit. For the prejudice that
orders of the respondent judge granting the alias
resulted, the petitioner himself must bear the fault.
writ of execution may not be pronounced as a
The judicial guideline which we take note of states
nullity.
as follows:

xxx xxx xxx

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 It is clear and manifest that after levy or
confidence must bear the loss. (Blondeau, et al. v. garnishment, for a judgment to be executed there
Nano, et al., L-41377, July 26, 1935, 61 Phil. 625) 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
Having failed to employ the proper safeguards to protect
such payment had been concededly made yet by
itself, the judgment debtor whose act made possible the loss
the absconding Sheriff to the private respondent
had but itself to blame.
Amelia Tan. The ultimate and essential step to
complete the execution of the judgment not having
The attention of this Court has been called to the bad practice been performed by the City Sheriff, the judgment
of a number of executing officers, of requiring checks in debt legally and factually remains unsatisfied.
satisfaction of judgment debts to be made out in their own
names. If a sheriff directs a judgment debtor to issue the
Strictly speaking execution cannot be equated with
checks in the sheriff's name, claiming he must get his
satisfaction of a judgment. Under unusual circumstances as
commission or fees, the debtor must report the sheriff
those obtaining in this petition, the distinction comes out
immediately to the court which ordered the execution or to
clearly.
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

Page 4 of 9
Issue of Means of Payment

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.

Page 5 of 9
Issue of Means of Payment
[G.R. No. 138588. August 23, 2001]
FAR EAST BANK & TRUST COMPANY, petitioner, vs. DIAZ
REALTY INC., respondent.
DECISION
PANGANIBAN, J.:
For a valid tender of payment, it is necessary that there
be a fusion of intent, ability and capability to make good such
offer, which must be absolute and must cover the amount
due. Though a check is not legal tender, and a creditor may
validly refuse to accept it if tendered as payment, one who in
fact accepted a fully funded check after the debtors
manifestation that it had been given to settle an obligation is
estopped from later on denouncing the efficacy of such tender
of payment.
The Case
The foregoing principle is used by this Court in
resolving the Petition for Review[1] on Certiorari before us,
challenging the January 26, 1999 Decision[2] of the Court of
Appeals[3] (CA) in CA-GR CV No. 45349. The dispositive
portion of the assailed Decision reads as follows:
WHEREFORE, the judgment appealed from
hereby MODIFIED, to read as follows:
WHEREFORE, JUDGMENT IS HEREBY RENDERED,
ORDERING:
1. The plaintiffs to pay Far East Bank & Trust Company the
principal sum of P1,067,000.00 plus interests thereon
computed at 12% per annum from July 9, 1988 until fully
paid;
2. The parties to negotiate for a new lease over the subject
premises; and
3. The defendant to pay the plaintiff the sum of fifteen
thousand (P15,000.00) pesos as and for attorneys fees plus
the costs of litigation.
All other claims of the parties against each other
are DENIED.[4]
Likewise assailed is the May 4, 1999 CA
Resolution,[5] which denied petitioners Motion for
Reconsideration.
The Facts
The court a quo summarized the antecedents of the
case as follows:
Sometime in August 1973, Diaz and Company got a loan from
the former PaBC [Pacific Banking Corporation] in the amount
of P720,000.00, with interest at 12% per annum, later
increased to 14%, 16%, 18% and 20%. The loan was secured
by a real estate mortgage over two parcels of land owned by
the plaintiff Diaz Realty, both located in Davao City. In 1981,
Allied Banking Corporation rented an office space in the
building constructed on the properties covered by the
mortgage contract, with the conformity of mortgagee PaBC,
whereby the parties agreed that the monthly rentals shall be
paid directly to the mortgagee for the lessors account, either
to partly or fully pay off the aforesaid mortgage
indebtedness. Pursuant to such contract, Allied Bank paid the
monthly rentals to PaBC instead of to the plaintiffs. On July 5,
1985, the Central Bank closed PaBC, placed it under
receivership, and appointed Renan Santos as its
liquidator. Sometime in December 1986, appellant FEBTC
purchased the credit of Diaz & Company in favor of PaBC, but
it was not until March 23, 1988 that Diaz was informed about
it.
According to the plaintiff as alleged in the complaint and
testified to by Antonio Diaz (President of Diaz & Company and
Vice-President of Diaz Realty), on March 23, 1988, he went to
office of PaBC which by then housed FEBTC and was told that
the latter had acquired PaBC; that Cashier Ramon Lim told
him that as of such date, his loan was P1,447,142.03; that he
(Diaz) asked the defendant to make an accounting of the
monthly rental payments made by Allied Bank; that on
December 14, 1988,[6] Diaz tendered to FEBTC the amount
of P1,450,000.00 through an Interbank check, in order to
prevent the imposition of additional interests, penalties and
surcharges on its loan; that FEBTC did not accept it as
payment; that instead, Diaz was asked to deposit the amount
with the defendants Davao City Branch Office, allegedly
pending the approval of Central Bank Liquidator Renan
Santos; that in the meantime, Diaz wrote the defendant,
asking that the interest rate be reduced from 20% to 12% per
annum, but no reply was ever made; that subsequently, the
is defendant told him to change the P1,450,000.00 deposit into
a money market placement, which he did; that the money
market placement expired on April 14, 1989; that when there
was still no news from the defendant whether or not it
[would] accept his tender of payment, he filed this case at the
Regional Trial Court of Davao City.
In its responsive pleading, the defendant set up the following
special/affirmative defenses: that sometime in December
1986, FEBTC purchased from the PaBC the account of the
plaintiffs for a total consideration of P1,828,875.00; that
despite such purchase, PaBC Davao Branch continued to
collect interests and penalty charges on the loan from January
6, 1987 to July 8, 1988; that it was therefore not FEBTC which
collected the interest rates mentioned in the complaint, but
PaBC; that it is not true that FEBTC was trying to impose
[exorbitant] rates of interest; that as a matter of fact, after the
transfer of plaintiffs account, it sought to negotiate with the
plaintiffs, and in fact, negotiations were made for a settlement
and possible reduction of charges; that FEBTC has no
knowledge of the rates of interest imposed and collected by
PaBC prior to the purchase of the account from the latter,
hence it could not be held responsible for those transactions
which transpired prior to the purchase; and that the
defendant acted at the opportune time for the settlement of
the account, albeit exercising prudence in the handling of
such account. The rest of the affirmative defenses are bare
denials.
After trial, the court a quo rendered judgment on August 6,
1993, the dispositive portion of which reads as follows:
WHEREFORE, judgment is hereby rendered as follows:
1. The plaintiff and defendant shall jointly compute the
interest due on the P1,057,000.00 loan from April 18, 1985
until November 14, 1988 at 12% per annum (IBAA Salazar
Case Supra).
2. That the parties shall then add the result of the joint
computation mentioned in paragraph one of the dispositive
portion to the P1,057,000.00 principal.
Page 6 of 9
Issue of Means of Payment
3. The result of the addition of the P1,057,000.00 principal
and the interests arrived at shall then be compared with
the P1,450,000.00 deposit and if P1,450,000.00 is not
enough, then the plaintiff shall pay the difference/deficiency
between the P1,450,000.00 deposit and what the parties
jointly computed[;] conversely, if the P1,450,000.00 is more
than what the parties have arrived [at] after the computation,
the defendant shall return the difference or the excess to the
plaintiffs.
4. The defendant shall cancel the mortgage.
5. Paragraph eight of the Lease Contract between Allied Bank
and the plaintiffs in which the defendants predecessor, Pacific
Banking gave its conformity (Exh. H) is hereby cancelled, so
that the rental should now be paid to the plaintiffs.
6. The defendant shall pay the plaintiffs the sums:
6-A. Fifteen thousand pesos as attorneys fees.
6-B. Three [h]undred [t]housand [p]esos (P300,000.00) as
exemplary damages.
6-C. The cost of suit.
SO ORDERED.
Upon a motion for reconsideration filed by defendant FEBTC
and after due notice and hearing, the court a quo issued an
order on October 12, 1993, modifying the aforequoted
decision, such that its dispositive portion as amended would
now read as follows:
IN VIEW WHEREOF, the decision rendered last August 6, is
modified, accordingly, to wit:
1. The plaintiff and defendant shall jointly compute the
interest due on the P1,167,000.00 loan from April 18, 1985
until November 14, 1988 at 12% per annum.
2. That the parties shall then add the result of the joint
computation mentioned in paragraph one above to
the P1,067,000.00 principal.
3. The result of the addition of the P1,067,000.00 principal
and the interests arrived at shall then be compared with
the P1,450,000.00 money market placement put up by the
plaintiff with the defendant bank if the same is still existing or
has not yet matured.
4. The defendant shall cancel the mortgage.
5. Paragraph eight of the lease contract between Allied Bank
and the plaintiff in which the defendant[s predecessor],
Pacific Banking gave its conformity (Exh. H) is hereby
cancelled and deleted, so that the rental should now be paid
to the plaintiff.
6. The defendant shall pay the plaintiff the sums:
6.A Fifteen [t]housand [p]esos as attorneys fees;
6.B Cost of suit.[7]
Page 7 of 9
The CA Ruling
The CA sustained the trial courts finding that there was
a valid tender of payment in the sum of P1,450,000, made by
Diaz Realty Inc. in favor of Far East Bank and Trust
Company. The appellate court reasoned that petitioner failed
to effectively rebut respondents evidence that it so tendered
the check to liquidate its indebtedness, and that petitioner
had unilaterally treated the same as a deposit instead.
The CA further ruled that in the computation of interest
charges, the legal rate of 12 percent per annum should apply,
reckoned from July 9, 1988, until full and final payment of the
whole indebtedness. It explained that while petitioners
purchase of respondents account from Pacific Banking
Corporation (PaBC) was valid, the 20 percent interest
stipulated in the Promissory Note should not apply, because
the account transfer was without the knowledge and the
consent of respondent-obligor.
The appellate court, however, sustained petitioners
assertion that the trial court should not have cancelled the
real estate mortgage contract, inasmuch as the principal
obligation upon which it was anchored was yet to be
extinguished. As to the lease contract, the CA held that the
same was subject to renegotiation by the parties.
Lastly, the court a quo upheld the trial courts award of
attorneys fees, pointing to petitioners negligence in not
immediately informing respondent of the purchase and
transfer of its credit, and in failing to negotiate in order to
avoid litigation.
Issues
Petitioner submits for our resolution the following
issues:
A.
Whether or not the Court of Appeals correctly ruled that the
validity of the tender of payment was not properly raised in
the trial court and could not thus be raised in the appeal.
B.
Whether or not the Court of Appeals erred in failing to apply
settled jurisprudential principles militating against the
private respondents contention that a valid tender of
payment had been made by it.
C.
Whether or not the Court of Appeals correctly found that the
transaction between petitioner and PaBC was an ineffective
novation and that the consent of private respondent was
necessary therefor.
D.
Whether or not the Court of Appeals erred in refusing to apply
the rate of interest freely stipulated upon by the parties to the
respondents obligation.
E.
Whether or not the Court of Appeals committed an
irreconcilable error in ordering the parties to re-negotiate the
terms of the contract while finding at the same time that the
mortgage contract containing the lease was valid.
F.
Issue of Means of Payment
Whether or not the petition, as argued by private respondent,
raises questions of fact not reviewable by certiorari.[8]
In the main, the Court will determine (1) the efficacy of
the alleged tender of payment made by respondent, (2) the
effect of the transfer to petitioner of respondents account
with PaBC, (3) the interest rate applicable, and (4) the status
of the Real Estate Mortgage.
The Courts Ruling
The Petition[9] is not meritorious.
First Issue: Tender of Payment
Petitioner resolutely argues that the CA erred in
upholding the validity of the tender of payment made by
respondent. What the latter had tendered to settle its
outstanding obligation, it points out, was a check which could
not be considered legal tender.
We disagree. The records show that petitioner bank
purchased respondents account from PaBC in December
1986, and that the latter was notified of the transaction only
on March 23, 1988. Thereafter, Antonio Diaz, president of
respondent corporation, inquired from petitioner on the
status and the amount of its obligation. He was informed that
the obligation summed up to P1,447,142.03. On November
14, 1988, petitioner received from respondent Interbank
Check No. 81399841 dated November 13, 1988, bearing the
amount of P1,450,000, with the notation Re: Full Payment of
Pacific Bank Account now turn[ed] over to Far East
Bank.[10] The check was subsequently cleared and honored by
Interbank, as shown by the Certification it issued on January
20, 1992.[11]
True, jurisprudence holds that, in general, a check does
not constitute legal tender, and that a creditor may validly
refuse it.[12] It must be emphasized, however, that this dictum
does not prevent a creditor from accepting a check as
payment. In other words, the creditor has the option and
the discretion of refusing or accepting it.
In the present case, petitioner bank did not refuse
respondents check. On the contrary, it accepted the check
which, it insisted, was a deposit. As earlier stated, the check
proved to be fully funded and was in fact honored by the
drawee bank. Moreover, petitioner was in possession of the
money for several months.
In further contending that there was no valid tender of
payment, petitioner emphasizes our pronouncement
in Roman Catholic Bishop of Malolos, Inc. v. Intermediate
Appellate Court,[13] as follows:
Tender of payment involves a positive and unconditional act
by the obligor of offering legal tender currency as payment to
the obligee for the formers obligation and demanding that the
latter accept the same.
xxxxxxxxx
Thus, tender of payment cannot be presumed by a mere
inference from surrounding circumstances. At most,
sufficiency of available funds is only affirmative of the
capacity or ability of the obligor to fulfill his part of the
bargain. But whether or not the obligor avails himself of such
funds to settle his outstanding account remains to be proven
by independent and credible evidence. Tender of payment
presupposes not only that the obligor is able, ready, and
Page 8 of 9
willing, but more so, in the act of performing his obligation. Ab
posse ad actu non vale illatio. A proof that an act could have
been done is no proof that it was actually done.
In other words, tender of payment is the definitive act
of offering the creditor what is due him or her, together with
the demand that the creditor accept the same. More
important, there must be a fusion
of intent, ability and capability to make good such offer, which
must be absolute and must cover the amount due.[14]
That respondent intended to settle its obligation with
petitioner is evident from the records of the case. After
learning that its loan balance was P1,447,142.03, it presented
to petitioner a check in the amount of P1,450,000, with the
specific notation that it was for full payment of its Pacific Bank
account that had been purchased by petitioner. The latter
accepted the check, even if it now insists that it considered the
same as a mere deposit. The check was sufficiently funded, as
in fact it was honored by the drawee bank. When petitioner
refused to release the mortgage, respondent instituted the
present case to compel the bank to acknowledge the tender of
payment, accept payment and cancel the mortgage. These
acts demonstrate respondents intent, ability and capability to
fully settle and extinguish its obligation to petitioner.
That respondent subsequently withdrew the money
from petitioner-bank is of no moment, because such
withdrawal would not affect the efficacy or the legal
ramifications of the tender of payment made on November
14, 1988. As already discussed, the tender of payment to
settle respondents obligation as computed by petitioner was
accepted, the check given in payment thereof converted into
money, and the money kept in petitioners possession for
several months.
Finally, petitioner points out that, in any case, tender of
payment extinguishes the obligation only after proper
consignation, which respondent did not do.
The argument does not persuade. For a consignation to
be necessary, the creditor must have refused, without just
cause, to accept the debtors payment.[15] However, as pointed
out earlier, petitioner accepted respondents check.
To iterate, the tender was made by respondent for the
purpose of settling its obligation. It was incumbent upon
petitioner to refuse, or accept it as payment. The latter did not
have the right or the option to accept and treat it as a
deposit. Thus, by accepting the tendered
check and converting it into money, petitioner is presumed to
have accepted it as payment. To hold otherwise would be
inequitable and unfair to the obligor.
Second Issue: Nature of the Transfer of Respondents
Account
Petitioner bewails the CAs characterization of the
transfer of respondents account from Pacific Banking
Corporation to petitioner as an ineffective novation.
Petitioner contends that the transfer was an assignment of
credit.
Indeed, the transfer of respondents credit from PaBC to
petitioner was an assignment of credit. Petitioners
acquisition of respondents credit did not involve any changes
in the original agreement between PaBC and respondent;
neither did it vary the rights and the obligations of the
parties.Thus, no novation by conventional subrogation could
have taken place.
An assignment of credit is an agreement by virtue of
which the owner of a credit (known as the assignor), by a legal
cause -- such as sale, dation in payment, exchange or donation
Issue of Means of Payment

-- and without the need of the debtors consent, transfers that

credit and its accessory rights to another (known as the
assignee), who acquires the power to enforce it, to the same
extent as the assignor could have enforced it against the
debtor.[16]

In the present case, it is undisputed that petitioner

purchased respondents loan from PaBC. In doing so, the
former acquired all of the latters rights against
respondent. Thus, petitioner had the right to collect the full
value of the credit from respondent, subject to the terms as
originally agreed upon in the Promissory Note.

Third Issue: Applicable Interest Rate

Petitioner bank, as assignee of respondents credit, is

entitled to the interest rate of 20 percent in the computation
of the debt of private respondent, as stipulated in the August
26, 1983 Promissory Note executed by the latter in favor of
PaBC.[17]

However, because there was a valid tender of payment

made on November 14, 1988, the accrual of interest based on
the stipulated rate should stop on that date. Thus, respondent
should pay petitioner-bank its principal obligation in the
amount of P1,067,000 plus accrued interest thereon at 20
percent per annum until November 14, 1988, less interest
payments given to PaBC from December 1986 to July 8,
1988.[18] Thereafter, the interest shall be computed at 12
percent per annum until full payment.

Fourth Issue: Status of Mortgage Contract

The Real Estate Mortgage executed between

respondent and PaBC to secure the formers principal
obligation, as well as the provision in the Contract of Lease
between respondent and Allied Bank with regard to the
application of rent payment to the formers indebtedness,
should subsist until full and final settlement of such obligation
pursuant to the guidelines set forth in this
Decision. Thereafter, the parties are free to negotiate a
renewal of either or both contracts, or to end any and all of
their contractual relations.

WHEREFORE, the Petition is hereby DENIED. The

assailed Decision of the Court of Appeals is AFFIRMED with
the following modifications: Respondent Diaz Realty Inc.
is ORDERED to pay Far East Bank and Trust Co. its principal
loan obligation in the amount of P1,067,000, with interest
thereon computed at 20 percent per annum until November
14, 1988, less any interest payments made to PaBC,
petitioners assignor. Thereafter, interest shall be computed
at 12 percent per annum until fully paid.

SO ORDERED.

Page 9 of 9