1
G.R. Nos. 104819-20. July 20, 1998
CHONNEY LIM, Petitioner, v. COURT OF APPEALS, LEA CASTRO WHELAN and
KEITH LAWRENCE WHELAN, Respondents.
DECISION
KAPUNAN, J.:
Before us is a petition for review of the decision of the Court of
Appeals1 affirming in toto the decision of the Regional Trial Court, Branch V,
Baguio City.2 The bare facts of this case as aptly stated by the Court of
Appeals in its decision are as follows:
On March 24, 1984, a conditional deed of sale was executed between
appellant Lim and appellee Lea Whelan. It was stipulated that appellee
Whelan would buy from the appellant a parcel of land with an area of 1,000
square meters for the sum of P600,000.00 or U.S. $30,000.00 in U.S. $100
denomination. The property, however, was mortgaged to the Bank of the
Philippine Islands; the loan which on maturity on August 14, 1984, would
be P269,960.88.
Lea Whelan then paid an earnest money of U.S. $9,000.00 consisting of U.S.
$8,000.00 in $100.00 bills and U.S. $1,000.00 in travellers checks of $100.00;
thereafter, she occupied the premises. Subsequently, appellee Whelan
allegedly gave appellant Lim U.S. $8,000.00, a bank draft in the sum
of P141,000.00 and later a check for P17,800.00 drawn against PCI Bank.
After these payments, a deed of absolute sale was signed by appellee
Whelan and appellant Lim on June 21, 1984, appellant Lim allegedly gave
Whelan xeroxed copies of title, realty tax receipts and bills for light and
water.
On August 23, 1984, appellant Lim sent Whelan a telegram demanding her to
vacate the subject property. Whelan countered that she was already the
owner thereof. On August 24, 1984, a complaint for ejectment was filed
against the appellee.
Plaintiff-appellee Chonney Lim claimed that he was not paid the U.S.
$8,000.00 due him; that the bank draft for the sum of P141,000.00 was not
honored; and that the check for P17,800.00 bounced. Defendant-appellee
Lea Whelan, however, replied that she paid the indebtedness of the
appellant in the amount of P210,297.70 inclusive of interests and penalty
charges hence, the mortgage of the property to the Bank of the Philippine
Islands was already cancelled. Consequently, appellee stopped the payment
of the bank draft and check in favor of the appellant. Appellee, likewise,
claimed that she paid the capital gains tax on the sale of the property to her
in the amount of P14,994.00. Furthermore, appellee Whelan alleged that the
house which was built on the land she bought, had been renovated at her
expense for the amount of P180,000.00 to P200,000.00. When, in 1986, the
said house was damaged by a typhoon, it was repaired and had cost
appellee P17,000.00.3cräläwvirtualibräry
Since the bank draft in the amount of P141,000.00 was dishonored and the
PCI Bank check for P17,800.00 bounced, petitioner Chonney Lim alleged that
he was not paid. He therefore instituted an action for rescission of contract
which was docketed as Civil Case No. 423-R.
On the other hand, Lea Whelan filed an action for specific performance
demanding from Chonney Lim the delivery of the title of said property which
she has fully paid. This was docketed as Civil Case No. 496-R.
These two (2) cases were consolidated and on June 19, 1989, the Regional
Trial Court, Branch V, Baguio City denied Chonney Lims action for rescission
and granted Lea Whelans prayer for specific performance. The dispositive
portion of the decision reads as follows:
WHEREFORE, in Civil Case No. 496-R, judgment is hereby rendered:
1. Directing the Register of Deeds of Baguio City to cancel, upon payment of
the prescribed fees therefor, Transfer Certificate of Title No. T-32741 of his
Registry and in lieu thereof issue a new one in the name of Lea Castro
Whelan, Filipino, of legal age, married to Keith Lawrence Whelan, an
Australian citizen and a resident of 136 Kennon Road, Baguio City; and for
this purpose, the Branch Clerk of Court may release to Lea Castro Whelan,
upon proper receipt, the owners copy of TCT No. T-32741;
2. Ordering Chonney B. Lim to pay Lea Castro Whelan the following amounts:
a. P75,291.70 representing the overpayment
made by Lea Castro Whelan;
b. P10,000.00 as moral damages;
c. P5,000.00 as exemplary damages;
d. P15,000.00 as attorneys fees; plus
e. the costs of suit.
3. Dismissing the complaint in Civil Case No. 496-R insofar as defendant Bank
of the Philippine Islands is concerned; and
4. Dismissing likewise the complaint of Chonney B. Lim against Lea Castro
Whelan and Keith Lawrence Whelan docketed as Civil Case No. 423-
R.4cräläwvirtualibräry
On appeal, the Court of Appeals affirmed the decision of the Regional Trial
Court. The motion for reconsideration was likewise denied. Hence, this
petition.
Petitioner makes the following assignment of errors:
A.
RESPONDENT COURT OF APPEALS ERRED GRAVELY, ON A VERY BASIC AND
IMPORTANT QUESTION OF LAW, WHEN IT CREDITED AS PAYMENT ON THE
PURCHASE PRICE UNDER THE DEED OF ABSOLUTE SALE RESPONDENT LEA
WHELANS BELATED AND BAD FAITH PAYMENT OF PETITIONER CHONNEY
LIMS LOAN WITH THE BANK OF THE PHILIPPINE ISLANDS (BPI), AND OF THE
CAPITAL GAINS TAX, WITHOUT HIS KNOWLEDGE AND CONSENT AND
AGAINST HIS WILL, THEREBY MISUNDERSTANDING AND MISAPPLYING
ARTICLE 1236 OF THE CIVIL CODE.
B.
RESPONDENT COURT OF APPEALS ERRED GRAVELY, ON A VERY BASIC AND
IMPORTANT QUESTION OF LAW, IN NOT HOLDING THAT THE DISHONOR OF
RESPONDENT LEA WHELANS TRB DEMAND DRAFT FOR P141,000.00 AND
PCIB CHECK FOR P17,000.00 DID NOT HAVE THE EFFECT OF PAYMENT ON
THE PURCHASE PRICE UNDER THE DEED OF ABSOLUTE SALE, THEREBY
VIOLATING ARTICLE 1249 OF THE CIVIL CODE.
C.
RESPONDENT COURT OF APPEALS ERRED GRAVELY, ON A VERY BASIC AND
IMPORTANT QUESTION OF LAW, IN CONCLUDING THAT THERE WAS
PAYMENT BY RESPONDENT LEA WHELAN OF THE SUM OF $8,000.00 IN CASH,
EVEN IN THE ABSENCE OF A RECEIPT THEREFOR AS REQUIRED BY THE DEED
OF ABSOLUTE SALE WHICH PROVIDES THAT PETITIONER CHONNEY LIM
SHALL ISSUE HER A RECEIPT OF THE CONSIDERATION OF THE SALE OF THE
ABOVE DESCRIBED PROPERTY, THEREBY VIOLATING THE LEGAL PRINCIPLE
THAT THE CONTRACT IS THE LAW BETWEEN THE PARTIES.
D.
RESPONDENT COURT OF APPEALS ERRED GRAVELY, ON A VERY BASIC AND
IMPORTANT QUESTION OF LAW, IN MISUNDERSTANDING AND MISAPPLYING
THE PRINCIPLE THAT THE FINDINGS OF TRIAL COURTS ARE ACCORDED GREAT
WEIGHT IN VIEW OF THEIR OPPORTUNITY TO OBSERVE THE CONDUCT AND
DEMEANOR OF WITNESSES, AND IN ITS GROSS MISAPPREHENSION OF THE
RECORD, CONSIDERING THAT IN THE CASE AT BAR THE TRIAL COURT DID
NOT BASE ITS FINDINGS ON THE PERSONAL CREDIBILITY OF RESPONDENT
WHELANS WITNESSES BUT ON CONCLUSIONS IT DERIVED FROM
DOCUMENTARY EVIDENCE, WHICH ARE THEREFORE CONCLUSIONS OF LAW
AS TO WHICH APPELLATE COURTS ARE NOT AT A DISADVANTAGE.
E.
RESPONDENT COURT OF APPEALS ERRED GRAVELY, ON A VERY BASIC AND
IMPORTANT PRINCIPLE OF LAW, IN OVERLOOKING OR DISREGARDING A
LEGION OF UNDISPUTED OR ADMITTED FACTS OF VITAL AND CRUCIAL
IMPORT IN THE CASE AT BAR WHICH WOULD DEFINITELY CHANGE THE
RESULT AND MANDATE A JUDGMENT IN FAVOR OF PETITIONER CHONNEY
LIM, SUCH AS EXACT ACCOUNTING AND PRECISE ARITHMETIC WORKING IN
FAVOR OF PETITIONER CHONNEY LIM, THEREBY COMMITTING WHOLESALE
AND GROSS MISAPPREHENSION OF THE RECORD THAT IS EVEN

TANTAMOUNT TO GRAVE ABUSE OF DISCRETION IN THE PERFORMANCE OF
ITS APPELLATE FUNCTION.
F.
RESPONDENT COURT OF APPEALS THEREFORE ERRED GRAVELY, ON VERY
BASIC AND IMPORTANT QUESTIONS AND PRINCIPLES OF LAW, IN AFFIRMING
AND NOT REVERSING THE DECISION AND JUDGMENT OF THE TRIAL
COURT.5cräläwvirtualibräry
The issues raised by petitioner are merely factual. Time and again, we have
always stated that it is not within the province of this Court to review the
findings of facts especially when the trial court and appellate court have no
cause for disagreement. Absent any whimsical or capricious exercise of
judgment, and unless the lack of any basis for the conclusions made by the
lower court be amply demonstrated, the Supreme Court will not disturb their
findings.6 While this rule is not inflexible, the Court finds no sufficient reason
to depart from such rule. The basic issue in the case at bar is whether or not
Chonney Lim has been fully paid for the property in question.
There is no dispute that a Conditional Deed of Sale was executed between
Chonney Lim and Lea Whelan covering the formers property along Kennon
Road., Baguio City. The consideration agreed upon was P600,000.00 or
$30,000.00. An earnest money of $14,000.00 was then paid.
Subsequently, Lea Whelan paid Chonney Lim an additional $8,000.00 in cash.
She also gave him a bank draft in the sum of P141,000.00 and a check
for P17,800.00 drawn against PCI Bank as full payment for the property.
Unfortunately, however, the bank draft and the PCI Bank check were
dishonored upon presentment. Chonney Lim moreover avers that he was not
paid $8,000.00 as evidenced by a promissory note written on the left margin
of a copy of the deed of sale in his possession. Thus, petitioner prayed for the
rescission of the contract.
On the other hand, Lea Whelan claims that she has given Chonney Lim the
amount of $8,000.00 in cash; the bank draft of P141,000.00 and the check
of P17,800.00. A deed of absolute sale was executed on June 21, 1984,
evidencing the full payment for the house. She however discovered that
Chonney Lim failed to pay the mortgage loan over the property to the BPI in
the amount of P210,297.70 inclusive of interest and penalty charges and the
capital gains tax to the BIR in the amount of P14,994.00 as promised in the
deed of sale so she paid them albeit without the knowledge of Chonney Lim.
She also incurred expenses for the renovation and repair of the house when
it was destroyed by a typhoon, all amounting to about P217,000.00. Since
she has in fact overpaid Chonney Lim, Lea Whelan demanded from him the
delivery of the title over said property.
The trial court gave credence to the version of Leah Whelan that she indeed
has paid Chonney Lim the full amount for the property. The court
ratiocinates:
The Court holds that LEA made the payments she claimed on the balance of
the purchase price of the disputed property for which reason CHONNEY
signed the corresponding Deed of Absolute Sale (Exhibit M or 4), albeit for
the watered down consideration of only P300,000.00 which was intended to
allow him to minimize his liability for capital gains tax. Being a businessman
of long standing, CHONNEY would surely not have signed the Deed of
Absolute Sale if he had not been priorly fully paid. What is more, in the Deed
of Absolute Sale, CHONNEY unqualifiedly bound himself to deliver to LEA
before the end of July 1984 the following:
1. Transfer Certificate of Title (TCT No. T-32741) with the
mortgage thereon duly cancelled;
2. Real Estate Receipts paid up to date;
3. Receipt of payment of Capital Gains Tax and the
clearance thereto;
4. To issue her a receipt of the consideration of the sale
of the above-described property.
(Exhibit M or "4")
Again, CHONNEY would not have assumed such an undertaking unless he has
already been fully paid; in fact, each of the things he imposed upon himself
to do presupposes full payment of the agreed purchase
price.7cräläwvirtualibräry
2
In maintaining that he was not paid the amount of $8,000 in cash, petitioner
alleged that there was no receipt issued as proof of payment. He even
presented a promissory note to the effect, allegedly written by Lea Whelan
on the left margin of his copy of the deed of sale which reads:
I, LEA CASTRO WHELAN PROMISED TO PAY THE VENDOR, MR. CHONNEY LIM
THE SUM OF SEVEN THOUSAND THREE HUNDRED TEN $7,310.00 DOLLARS
(ALL IN $100.00 U.S. GREEN MONEY) ON OR BEFORE THE END OF JULY 1984,
THROUGH MY LAWYER ATTY. JOSE S. PADOLINA, AS PART OF MY FULL
PAYMENT FOR THE HOUSE & LOT OF MR. LIM. (REF:
INFORMATION/AGREEMENT CONTRACT DATED JUNE 21, 1984) FAILURE ON
MY PART TO COMPLY WITH SUCH PROMISE, IS SUFFICIENT GROUND TO
TERMINATE OUR DEED OF ABSOLUTE SALE DATED JUNE 20, 1984. I
THEREFORE AFFIX MY SIGNATURE AGAIN ON THE SECOND PAGE OF THIS
DEED OF ABSOLUTE SALE, THAT THE AFOREMENTIONED PROMISED &
ARRANGEMENT ARE TRUE & CORRECT, TO THE BEST OF MY KNOWLEDGE.
SGD. LEA CASTRO WHELAN
(WITH MY FULL CONSENT)
SGD. ILLEGIBLE
JUNE 21, 1984 BAGUIO8cräläwvirtualibräry
This Court can not, in any way, accept Chonney Lims assertion. It behooves
us to think why a document of so much importance, such as a promissory
note should just be written on the margin of the deed of sale. Considering
the important transaction entered into by the parties and the substantial
amount involved, it is highly improbable for Lea Whelan to have merely
written a promissory note in the margin of the deed of sale when this could
be conveniently written on a separate sheet of paper if she indeed had made
such an undertaking. Moreover, a close perusal of the note reveals that Lea
Whelans name between the words I and promised is handwritten and the
rest of the note typewritten and verbose enough to fit into Lea Whelans
signature on the second page. Her signatures which appeared on the left
margin of the two-paged deed of sale were merely intended to authenticate
the document which had alterations in the date and for no other purpose.
There is basis to conclude that not only is the document highly suspect but
Chonney Lims character and credibility, as well.
As to why no receipt was issued for the $8,000.00, the trial court has this
explanation:
True it is that no receipt was issued for the payment of the US $8,000.00.
LEA, however, has satisfactorily explained that it is for the reason that the
payment was in cash and that the Deed of Absolute Sale is already
acknowledgement (sic) enough of full payment having been made by her.
Indeed, a similar mode of conduct had earlier been followed by the parties
when LEA paid for the stipulated earnest money or down payment of
US$14,000.00. Only the first payment of UD$9,000.00 (sic), was receipted for
(Exhibit E or 2). When LEA paid the remaining US $5,000.00, CHONNEY did
not anymore issue any receipt as the Conditional Deed of Sale (Exhibit F or 3)
which the parties executed simultaneously with the payment already served
as the receipt.9cräläwvirtualibräry
Anent the bank draft and the check which were dishonored upon
presentment, Chonney Lim asserts that since this did not effect payment, he
was therefore entitled to a rescission of the contract. While such assertion
may be true, the attendant circumstances of the case, however, do not
warrant such action. It is borne out by the records that the draft and the
check were properly funded at the time of presentment. 10 The dishonor of
the documents was neither the fault of Chonney Lim nor Lea Whelan. On this
point, the trial court correctly elucidates:
With respect to the bank draft for P141,000.00, the same was duly funded as
indubitably shown by the corresponding debit slip (Exhibit 8) issued by the
Traders Royal Bank (TRB). That it was not encashed when CHONEY presented
it for payment at the TRB, Baguio Casino Branch, was, as explained In TRBs
letter to CHONNEY, dated August 16, 1984 (Exhibit EE), due to a management
ruling cancelling the authority of the TRB, Baguio Casino Branch, to encash
such a draft so the LEAs daughter was advised to get back the draft to be
replaced with another drawn payable at a TRB Branch nearest Baguio City. In
the same letter, CHONNEY was further advised that LEA was in good faith
and that he may present the draft for payment at the TRB, Broadcast City
Branch. Unfortunately, LEAs daughter did not get back the draft from
CHONNEY to be replaced with another nor did CHONNEY present it for
payment at TRBs Broadcast City Branch. But the fact remains that the bank
draft had always been backed up with sufficient funds. Accordingly, the fault,
if any, should be laid at the TRBs doorstep for allowing the draft to be drawn
payable at its Baguio Casino Branch when the latter had no more authority
for the purpose.

As to the check for P17,800.00, dated June 21, 1984 (Exhibit Q or 6), LEA
issued it against her current account deposit of P20,000.00 with the
Philippine Commercial International Bank (PCIB) which she opened on June
21, 1984 (Exhibits 12, 13 and 13-A). The deposit was reduced to P19,000.00
as of June 22 (Exhibit 13-B) but still sufficient to cover the check. However,
the check was dishonored because CHONNEY presented it for payment on
June 27 and before that, or on June 25, he had prematurely encashed LEAs
other check, dated July 25, 1984, for P2,000.00 (Exhibit F), thereby further
reducing her deposit was already short of P800.00 to answer for her check
of P17,800.00. Demonstrably, the fault was not LEAs but the drawee banks
and CHONNEYs as evidence by CHONNEYs encashment of LEAs check
for P2,000.00 before its due date on July 25, 1984. In fact, the drawee bank
had openly admitted its oversight (Exhibit 14).11cräläwvirtualibräry
Nonetheless, the payment of the mortgage loan and the capital gains tax
over the property was enough to cover for the payment of said property.
Chonney Lim asserts that this was done in bad faith, merely an afterthought
when the bank draft and the check were dishonored. It is however for this
reason why Lea Whelan eventually caused the stop payment of the checks
because she found out that Chonney Lim failed to fulfill his obligations as
provided in the deed of sale. She had paid more than enough of what was
required from her for the property.
x x x LEA discovered that, contrary to CHONNEYs representation, he had not
yet redeemed the disputed property from the mortgage indebtedness for
which it had been given as security to the Bank of the Philippine Island (BPI)
which indebtedness had already gone up to P210,297.70, inclusive of
interests and penalty charges (Exhibit 22). To protect her interest in the
property, she paid the mortgage indebtedness, and at the same time,
stopped the payment of her bank draft and check since what she paid to the
BPI was very much more than their aggregate amount of P158,800.00.
LEA furthermore found out that CHONNEY did not also pay for the capital
gains tax on their transaction in the total amount of P14,944.00 (Exhibits 39
and 40); she also paid for it.
The recourse taken by LEA is sanctioned by law and jurisprudence and
CHONNEY can be bound thereby although he had no prior knowledge
thereof considering that the payments made were clearly to his benefit as he
was thus spared of being burdened with interests and penalty charges
(Rehabilitation Finance Corporation vs. Court of Appeals, 94 Phil.
984).12cräläwvirtualibräry
Article 1236 of the Civil Code is applicable in the case at bar which provides in
part:
xxx
Whoever pays for another may demand from the debtor what he has paid,
except that if he paid without the knowledge or against the will of the
debtor, he can recover only insofar as the payment has been beneficial to the
debtor.
Pursuant to the above provision, the respondent Court, thus, ruled that:
The payment of the loan and capital gains tax undoubtedly relieved the
appellant from such obligations. The benefit had ever been mutual, both
appellant and appellee had obtained advantages on their sides - the
appellant from his loan and appellee being secured of the
possession.13cräläwvirtualibräry
We find no error with the ruling that petitioner Lim is not entitled to
rescission of the contract. It cannot be denied that Chonney Lim is also not
without fault in this case. It was Chonney Lims obligation to see to it that the
property was free from all encumbrances and tax liabilities, 14 among others,
which he obviously failed to do. The respondent courts ruling in considering
the payment of the mortgage loan and the capital gains tax by Lea Whelan as
her full payment for the property is but a fair disposition which this Court
does not see any cogent reason to reverse.
WHEREFORE, the decision of the Court of Appeals is hereby AFFIRMED.
SO ORDERED.
G.R. No. 129919               February 6, 2002
DOMINION INSURANCE CORPORATION, petitioner,
vs.
3
COURT OF APPEALS, RODOLFO S. GUEVARRA, and FERNANDO
AUSTRIA, respondents.
DECISION
PARDO, J.:
The Case
This is an appeal via certiorari1 from the decision of the Court of
Appeals2 affirming the decision3 of the Regional Trial Court, Branch 44, San
Fernando, Pampanga, which ordered petitioner Dominion Insurance
Corporation (Dominion) to pay Rodolfo S. Guevarra (Guevarra) the sum of
P156,473.90 representing the total amount advanced by Guevarra in the
payment of the claims of Dominion’s clients.
The Facts
The facts, as found by the Court of Appeals, are as follows:
"On January 25, 1991, plaintiff Rodolfo S. Guevarra instituted Civil Case No.
8855 for sum of money against defendant Dominion Insurance Corporation.
Plaintiff sought to recover thereunder the sum of P156,473.90 which he
claimed to have advanced in his capacity as manager of defendant to satisfy
certain claims filed by defendant’s clients.
"In its traverse, defendant denied any liability to plaintiff and asserted a
counterclaim for P249,672.53, representing premiums that plaintiff allegedly
failed to remit.
"On August 8, 1991, defendant filed a third-party complaint against Fernando
Austria, who, at the time relevant to the case, was its Regional Manager for
Central Luzon area.
"In due time, third-party defendant Austria filed his answer.
"Thereafter the pre-trial conference was set on the following dates: October
18, 1991, November 12, 1991, March 29, 1991, December 12, 1991, January
17, 1992, January 29, 1992, February 28, 1992, March 17, 1992 and April 6,
1992, in all of which dates no pre-trial conference was held. The record
shows that except for the settings on October 18, 1991, January 17, 1992 and
March 17, 1992 which were cancelled at the instance of defendant, third-
party defendant and plaintiff, respectively, the rest were postponed upon
joint request of the parties.
"On May 22, 1992 the case was again called for pre-trial conference. Only
plaintiff and counsel were present. Despite due notice, defendant and
counsel did not appear, although a messenger, Roy Gamboa, submitted to
the trial court a handwritten note sent to him by defendant’s counsel which
instructed him to request for postponement. Plaintiff’s counsel objected to
the desired postponement and moved to have defendant declared as in
default. This was granted by the trial court in the following order:
"ORDER
"When this case was called for pre-trial this afternoon only plaintiff and his
counsel Atty. Romeo Maglalang appeared. When shown a note dated May
21, 1992 addressed to a certain Roy who was requested to ask for
postponement, Atty. Maglalang vigorously objected to any postponement on
the ground that the note is but a mere scrap of paper and moved that the
defendant corporation be declared as in default for its failure to appear in
court despite due notice.
"Finding the verbal motion of plaintiff’s counsel to be meritorious and
considering that the pre-trial conference has been repeatedly postponed on
motion of the defendant Corporation, the defendant Dominion Insurance
Corporation is hereby declared (as) in default and plaintiff is allowed to
present his evidence on June 16, 1992 at 9:00 o’clock in the morning.
"The plaintiff and his counsel are notified of this order in open court.
"SO ORDERED.
"Plaintiff presented his evidence on June 16, 1992. This was followed by a
written offer of documentary exhibits on July 8 and a supplemental offer of
additional exhibits on July 13, 1992. The exhibits were admitted in evidence
in an order dated July 17, 1992.

"On August 7, 1992 defendant corporation filed a ‘MOTION TO LIFT ORDER
OF DEFAULT.’ It alleged therein that the failure of counsel to attend the pre-
trial conference was ‘due to an unavoidable circumstance’ and that counsel
had sent his representative on that date to inform the trial court of his
inability to appear. The Motion was vehemently opposed by plaintiff.
"On August 25, 1992 the trial court denied defendant’s motion for reasons,
among others, that it was neither verified nor supported by an affidavit of
merit and that it further failed to allege or specify the facts constituting his
meritorious defense.
"On September 28, 1992 defendant moved for reconsideration of the
aforesaid order. For the first time counsel revealed to the trial court that the
reason for his nonappearance at the pre-trial conference was his illness. An
Affidavit of Merit executed by its Executive Vice-President purporting to
explain its meritorious defense was attached to the said Motion. Just the
same, in an Order dated November 13, 1992, the trial court denied said
Motion.
"On November 18, 1992, the court a quo rendered judgment as follows:
"WHEREFORE, premises considered, judgment is hereby rendered ordering:
"1. The defendant Dominion Insurance Corporation to pay plaintiff
the sum of P156,473.90 representing the total amount advanced
by plaintiff in the payment of the claims of defendant’s clients;
"2. The defendant to pay plaintiff P10,000.00 as and by way of
attorney’s fees;
"3. The dismissal of the counter-claim of the defendant and the
third-party complaint;
"4. The defendant to pay the costs of suit."4
On December 14, 1992, Dominion appealed the decision to the Court of
Appeals.5
On July 19, 1996, the Court of Appeals promulgated a decision affirming that
of the trial court.6 On September 3, 1996, Dominion filed with the Court of
Appeals a motion for reconsideration.7 On July 16, 1997, the Court of Appeals
denied the motion.8
Hence, this appeal.9
The Issues
The issues raised are: (1) whether respondent Guevarra acted within his
authority as agent for petitioner, and (2) whether respondent Guevarra is
entitled to reimbursement of amounts he paid out of his personal money in
settling the claims of several insured.
The Court's Ruling
The petition is without merit.
By the contract of agency, a person binds himself to render some service or
to do something in representation or on behalf of another, with the consent
or authority of the latter.10 The basis for agency is representation.11 On the
part of the principal, there must be an actual intention to appoint 12 or an
intention naturally inferrable from his words or actions; 13 and on the part of
the agent, there must be an intention to accept the appointment and act on
it,14 and in the absence of such intent, there is generally no agency.15
A perusal of the Special Power of Attorney16 would show that petitioner
(represented by third-party defendant Austria) and respondent Guevarra
intended to enter into a principal-agent relationship. Despite the word
"special" in the title of the document, the contents reveal that what was
constituted was actually a general agency. The terms of the agreement read:
"That we, FIRST CONTINENTAL ASSURANCE COMPANY, INC.,17 a corporation
duly organized and existing under and by virtue of the laws of the Republic of
the Philippines, xxx represented by the undersigned as Regional Manager,
xxx do hereby appoint RSG Guevarra Insurance Services represented by Mr.
Rodolfo Guevarra xxx to be our Agency Manager in San Fdo., for our place
and stead, to do and perform the following acts and things:
4
"1. To conduct, sign, manager (sic), carry on and transact Bonding
and Insurance business as usually pertain to a Agency Office, or
FIRE, MARINE, MOTOR CAR, PERSONAL ACCIDENT, and
BONDING with the right, upon our prior written consent, to
appoint agents and sub-agents.
"2. To accept, underwrite and subscribed (sic) cover notes or
Policies of Insurance and Bonds for and on our behalf.
"3. To demand, sue, for (sic) collect, deposit, enforce payment,
deliver and transfer for and receive and give effectual receipts and
discharge for all money to which the FIRST CONTINENTAL
ASSURANCE COMPANY, INC.,18 may hereafter become due, owing
payable or transferable to said Corporation by reason of or in
connection with the above-mentioned appointment.
"4. To receive notices, summons, and legal processes for and in
behalf of the FIRST CONTINENTAL ASSURANCE COMPANY, INC., in
connection with actions and all legal proceedings against the said
Corporation."19 [Emphasis supplied]
The agency comprises all the business of the principal, 20 but, couched in
general terms, it is limited only to acts of administration.21
A general power permits the agent to do all acts for which the law does not
require a special power.22 Thus, the acts enumerated in or similar to those
enumerated in the Special Power of Attorney do not require a special power
of attorney.
Article 1878, Civil Code, enumerates the instances when a special power of
attorney is required. The pertinent portion that applies to this case provides
that:
"Article 1878. Special powers of attorney are necessary in the following
cases:
"(1) To make such payments as are not usually considered as acts of
administration;
"x x x           x x x          x x x
"(15) Any other act of strict dominion."
The payment of claims is not an act of administration. The settlement of
claims is not included among the acts enumerated in the Special Power of
Attorney, neither is it of a character similar to the acts enumerated therein. A
special power of attorney is required before respondent Guevarra could
settle the insurance claims of the insured.
Respondent Guevarra’s authority to settle claims is embodied in the
Memorandum of Management Agreement23 dated February 18, 1987 which
enumerates the scope of respondent Guevarra’s duties and responsibilities
as agency manager for San Fernando, Pampanga, as follows:
"x x x           x x x          x x x
"1. You are hereby given authority to settle and dispose of all
motor car claims in the amount of P5,000.00 with prior approval
of the Regional Office.
"2. Full authority is given you on TPPI claims settlement.
" x x x           x x x          x x x "24
In settling the claims mentioned above, respondent Guevarra’s authority is
further limited by the written standard authority to pay, 25 which states that
the payment shall come from respondent Guevarra’s revolving fund or
collection. The authority to pay is worded as follows:
"This is to authorize you to withdraw from your revolving fund/collection the
amount of PESOS __________________ (P ) representing the payment on
the _________________ claim of assured _______________ under Policy No.
______ in that accident of ___________ at ____________.
"It is further expected, release papers will be signed and authorized by the
concerned and attached to the corresponding claim folder after effecting
payment of the claim.

"(sgd.) FERNANDO C. AUSTRIA
Regional Manager"26
[Emphasis supplied]
The instruction of petitioner as the principal could not be any
clearer.1âwphi1 Respondent Guevarra was authorized to pay the claim of the
insured, but the payment shall come from the revolving fund or collection in
his possession.
Having deviated from the instructions of the principal, the expenses that
respondent Guevarra incurred in the settlement of the claims of the insured
may not be reimbursed from petitioner Dominion. This conclusion is in
accord with Article 1918, Civil Code, which states that:
"The principal is not liable for the expenses incurred by the agent in the
following cases:
"(1) If the agent acted in contravention of the principal’s
instructions, unless the latter should wish to avail himself of the
benefits derived from the contract;
" x x x           x x x          x x x "
However, while the law on agency prohibits respondent Guevarra from
obtaining reimbursement, his right to recover may still be justified under the
general law on obligations and contracts.
Article 1236, second paragraph, Civil Code, provides:
"Whoever pays for another may demand from the debtor what he has paid,
except that if he paid without the knowledge or against the will of the
debtor, he can recover only insofar as the payment has been beneficial to the
debtor."
In this case, when the risk insured against occurred, petitioner’s liability as
insurer arose.1âwphi1 This obligation was extinguished when respondent
Guevarra paid the claims and obtained Release of Claim Loss and
Subrogation Receipts from the insured who were paid.
Thus, to the extent that the obligation of the petitioner has been
extinguished, respondent Guevarra may demand for reimbursement from his
principal. To rule otherwise would result in unjust enrichment of petitioner.
The extent to which petitioner was benefited by the settlement of the
insurance claims could best be proven by the Release of Claim Loss and
Subrogation Receipts27 which were attached to the original complaint as
Annexes C-2, D-1, E-1, F-1, G-1, H-1, I-1 and J-l, in the total amount of
P116,276.95.
However, the amount of the revolving fund/collection that was then in the
possession of respondent Guevarra as reflected in the statement of account
dated July 11, 1990 would be deducted from the above amount.
The outstanding balance and the production/remittance for the period
corresponding to the claims was P3,604.84. Deducting this from
P116,276.95, we get P112,672.11. This is the amount that may be
reimbursed to respondent Guevarra.
The Fallo
IN VIEW WHEREOF, we DENY the Petition. However, we MODIFY the
decision of the Court of Appeals28 and that of the Regional Trial Court, Branch
44, San Fernando, Pampanga,29 in that petitioner is ordered to pay
respondent Guevarra the amount of P112,672.11 representing the total
amount advanced by the latter in the payment of the claims of petitioner’s
clients.
No costs in this instance.
SO ORDERED.
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
5
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
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.
6
III
INTEREST IS NOT PAYABLE WHEN THE DECISION IS SILENT AS TO
THE PAYMENT THEREOF.
IV
SECTION 5, RULE 39, PARTICULARLY REFERS TO LEVY OF
PROPERTY OF JUDGMENT DEBTOR AND DISPOSAL OR SALE
THEREOF TO SATISFY JUDGMENT.
Can an alias writ of execution be issued without a prior return of the original
writ by the implementing officer?
We rule in the affirmative and we quote the respondent court's decision with
approval:
The issuance of the questioned alias writ of execution under the
circumstances here obtaining is justified because even with the
absence of a Sheriffs return on the original writ, the unalterable
fact remains that such a return is incapable of being obtained (sic)
because the officer who is to make the said return has absconded
and cannot be brought to the Court despite the earlier order of
the court for him to appear for this purpose. (Order of Feb. 21,
1978, Annex C, Petition). Obviously, taking cognizance of this
circumstance, the order of May 11, 1978 directing the issuance of
an alias writ was therefore issued. (Annex D. Petition). The need
for such a return as a condition precedent for the issuance of an
alias writ was justifiably dispensed with by the court below and its
action in this regard meets with our concurrence. A contrary view
will produce an abhorent situation whereby the mischief of an
erring officer of the court could be utilized to impede indefinitely
the undisputed and awarded rights which a prevailing party
rightfully deserves to obtain and with dispatch. The final judgment
in this case should not indeed be permitted to become illusory or
incapable of execution for an indefinite and over extended period,
as had already transpired. (Rollo, pp. 35-36)
Judicium non debet esse illusorium; suum effectum habere debet (A judgment
ought not to be illusory it ought to have its proper effect).
Indeed, technicality cannot be countenanced to defeat the execution of a
judgment for execution is the fruit and end of the suit and is very aptly called
the life of the law (Ipekdjian Merchandising Co. v. Court of Tax Appeals, 8
SCRA 59 [1963]; Commissioner of Internal Revenue v. Visayan Electric Co., 19
SCRA 697, 698 [1967]). A judgment cannot be rendered nugatory by the
unreasonable application of a strict rule of procedure. Vested rights were
never intended to rest on the requirement of a return, the office of which is
merely to inform the court and the parties, of any and all actions taken under
the writ of execution. Where such information can be established in some
other manner, the absence of an executing officer's return will not preclude a
judgment from being treated as discharged or being executed through an
alias writ of execution as the case may be. More so, as in the case at bar.
Where the return cannot be expected to be forthcoming, to require the same
would be to compel the enforcement of rights under a judgment to rest on
an impossibility, thereby allowing the total avoidance of judgment debts. So
long as a judgment is not satisfied, a plaintiff is entitled to other writs of
execution (Government of the Philippines v. Echaus and Gonzales, 71 Phil.
318). It is a well known legal maxim that he who cannot prosecute his
judgment with effect, sues his case vainly.
More important in the determination of the propriety of the trial court's
issuance of an alias writ of execution is the issue of satisfaction of judgment.
Under the peculiar circumstances surrounding this case, did the payment
made to the absconding sheriff by check in his name operate to satisfy the
judgment debt? The Court rules that the plaintiff who has won her case
should not be adjudged as having sued in vain. To decide otherwise would
not only give her an empty but a pyrrhic victory.
It should be emphasized that under the initial judgment, Amelia Tan was
found to have been wronged by PAL.
She filed her complaint in 1967.
After ten (10) years of protracted litigation in the Court of First Instance and
the Court of Appeals, Ms. Tan won her case.
It is now 1990.

Almost twenty-two (22) years later, Ms. Tan has not seen a centavo of what
the courts have solemnly declared as rightfully hers. Through absolutely no
fault of her own, Ms. Tan has been deprived of what, technically, she should
have been paid from the start, before 1967, without need of her going to
court to enforce her rights. And all because PAL did not issue the checks
intended for her, in her name.
Under the peculiar circumstances of this case, the payment to the
absconding sheriff by check in his name did not operate as a satisfaction of
the judgment debt.
In general, a payment, in order to be effective to discharge an obligation,
must be made to the proper person. Article 1240 of the Civil Code provides:
Payment shall be made to the person in whose favor the
obligation has been constituted, or his successor in interest, or
any person authorized to receive it. (Emphasis supplied)
Thus, payment must be made to the obligee himself or to an agent having
authority, express or implied, to receive the particular payment (Ulen v.
Knecttle 50 Wyo 94, 58 [2d] 446, 111 ALR 65). Payment made to one having
apparent authority to receive the money will, as a rule, be treated as though
actual authority had been given for its receipt. Likewise, if payment is made
to one who by law is authorized to act for the creditor, it will work a
discharge (Hendry v. Benlisa 37 Fla. 609, 20 SO 800,34 LRA 283). The receipt
of money due on ajudgment by an officer authorized by law to accept it will,
therefore, satisfy the debt (See 40 Am Jm 729, 25; Hendry v. Benlisa supra;
Seattle v. Stirrat 55 Wash. 104 p. 834,24 LRA [NS] 1275).
The theory is where payment is made to a person authorized and recognized
by the creditor, the payment to such a person so authorized is deemed
payment to the creditor. Under ordinary circumstances, payment by the
judgment debtor in the case at bar, to the sheriff should be valid payment to
extinguish the judgment debt.
There are circumstances in this case, however, which compel a different
conclusion.
The payment made by the petitioner to the absconding sheriff was not in
cash or legal tender but in checks. The checks were not payable to Amelia
Tan or Able Printing Press but to the absconding sheriff.
Did such payments extinguish the judgment debt?
Article 1249 of the Civil Code provides:
The payment of debts in money shall be made in the currency
stipulated, and if it is not possible to deliver such currency, then in
the currency which is legal tender in the Philippines.
The delivery of promissory notes payable to order, or bills of
exchange or other mercantile documents shall produce the effect
of payment only when they have been cashed, or when through
the fault of the creditor they have been impaired.
In the meantime, the action derived from the original obligation
shall be held in abeyance.
In the absence of an agreement, either express or implied, payment means
the discharge of a debt or obligation in money (US v. Robertson, 5 Pet. [US]
641, 8 L. ed. 257) and unless the parties so agree, a debtor has no rights,
except at his own peril, to substitute something in lieu of cash as medium of
payment of his debt (Anderson v. Gill, 79 Md.. 312, 29 A 527, 25 LRA 200,47
Am. St. Rep. 402). Consequently, unless authorized to do so by law or by
consent of the obligee a public officer has no authority to accept anything
other than money in payment of an obligation under a judgment being
executed. Strictly speaking, the acceptance by the sheriff of the petitioner's
checks, in the case at bar, does not, per se, operate as a discharge of the
judgment debt.
Since a negotiable instrument is only a substitute for money and not money,
the delivery of such an instrument does not, by itself, operate as payment
(See. 189, Act 2031 on Negs. Insts.; Art. 1249, Civil Code; Bryan Landon Co. v.
American Bank, 7 Phil. 255; Tan Sunco v. Santos, 9 Phil. 44; 21 R.C.L. 60, 61).
A check, whether a manager's check or ordinary cheek, is not legal tender,
and an offer of a check in payment of a debt is not a valid tender of payment
and may be refused receipt by the obligee or creditor. Mere delivery of
checks does not discharge the obligation under a judgment. The obligation is
7
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.1âwphi1 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.
x x x           x x x          x x x
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
8
totally supersede the trial court's judgment in Civil Case No. 71307. It merely
modified the same as to the principal amount awarded as actual damages.
WHEREFORE, IN VIEW OF THE FOREGOING, the petition is hereby DISMISSED.
The judgment of the respondent Court of Appeals is AFFIRMED and the trial
court's issuance of the alias writ of execution against the petitioner is upheld
without prejudice to any action it should take against the errant sheriff Emilio
Z. Reyes. The Court Administrator is ordered to follow up the actions taken
against Emilio Z. Reyes.
SO ORDERED.
Fernan, C.J., Cruz, Paras, Bidin, Griño-Aquino, Medialdea and Regalado, JJ.,
concur.
Separate Opinions
NARVASA, J., dissenting:
The execution of final judgments and orders is a function of the sheriff, an
officer of the court whose authority is by and large statutorily determined to
meet the particular exigencies arising from or connected with the
performance of the multifarious duties of the office. It is the
acknowledgment of the many dimensions of this authority, defined by
statute and chiselled by practice, which compels me to disagree with the
decision reached by the majority.
A consideration of the wide latitude of discretion allowed the sheriff as the
officer of the court most directly involved with the implementation and
execution of final judgments and orders persuades me that PAL's payment to
the sheriff of its judgment debt to Amelia Tan, though made by check issued
in said officer's name, lawfully satisfied said obligation and foreclosed further
recourse therefor against PAL, notwithstanding the sheriffs failure to deliver
to Tan the proceeds of the check.
It is a matter of history that the judiciary .. is an inherit or of the
Anglo-American tradition. While the common law as such .. "is not
in force" in this jurisdiction, "to breathe the breath of life into
many of the institutions, introduced [here] under American
sovereignty, recourse must be had to the rules, principles and
doctrines of the common law under whose protecting aegis the
prototypes of these institutions had their birth" A sheriff is "an
officer of great antiquity," and was also called the shire reeve. A
shire in English law is a Saxon word signifying a division later
called a county. A reeve is an ancient English officer of justice
inferior in rank to an alderman .. appointed to process, keep the
King's peace, and put the laws in execution. From a very remote
period in English constitutional history .. the shire had another
officer, namely the shire reeve or as we say, the sheriff. .. The
Sheriff was the special representative of the legal or central
authority, and as such usually nominated by the King. .. Since the
earliest times, both in England and the United States, a sheriff has
continued his status as an adjunct of the court .. . As it was there,
so it has been in the Philippines from the time of the organization
of the judiciary .. . (J. Fernando's concurring opinion in Bagatsing
v. Herrera, 65 SCRA 434)
One of a sheriff s principal functions is to execute final judgments and orders.
The Rules of Court require the writs of execution to issue to him, directing
him to enforce such judgments and orders in the manner therein provided
(Rule 39). The mode of enforcement varies according to the nature of the
judgment to be carried out: whether it be against property of the judgment
debtor in his hands or in the hands of a third person i e. money judgment), or
for the sale of property, real or personal (i.e. foreclosure of mortgage) or the
delivery thereof, etc. (sec. 8, Rule 39).
Under sec. 15 of the same Rule, the sheriff is empowered to levy on so much
of the judgment debtor's property as may be sufficient to enforce the money
judgment and sell these properties at public auction after due notice to
satisfy the adjudged amount. It is the sheriff who, after the auction sale,
conveys to the purchaser the property thus sold (secs. 25, 26, 27, Rule 39),
and pays the judgment creditor so much of the proceeds as will satisfy the
judgment. When the property sold by him on execution is an immovable
which consequently gives rise to a light of redemption on the part of the
judgment debtor and others (secs. 29, 30, Rule 39), it is to him (or to the
purchaser or redemptioner that the payments may be made by those

declared by law as entitled to redeem (sec. 31, Rule 39); and in this situation,
it becomes his duty to accept payment and execute the certificate of
redemption (Enage v. Vda. y Hijos de Escano, 38 Phil. 657, cited in Moran,
Comments on the Rules of Court, 1979 ed., vol. 2, pp. 326-327). It is also to
the sheriff that "written notice of any redemption must be given and a
duplicate filed with the registrar of deeds of the province, and if any
assessments or taxes are paid by the redemptioner or if he has or acquires
any lien other than that upon which the redemption was made, notice
thereof must in like manner be given to the officer and filed with the
registrar of deeds," the effect of failure to file such notice being that
redemption may be made without paying such assessments, taxes, or liens
(sec. 30, Rule 39).
The sheriff may likewise be appointed a receiver of the property of the
judgment debtor where the appointment of the receiver is deemed
necessary for the execution of the judgment (sec. 32, Rule 39).
At any time before the sale of property on execution, the judgment debtor
may prevent the sale by paying the sheriff the amount required by the
execution and the costs that have been incurred therein (sec. 20, Rule 39).
The sheriff is also authorized to receive payments on account of the
judgment debt tendered by "a person indebted to the judgment debtor," and
his "receipt shall be a sufficient discharge for the amount so paid or directed
to be credited by the judgment creditor on the execution" (sec. 41, Rule 39).
Now, obviously, the sheriff s sale extinguishes the liability of the judgment
debtor either in fun, if the price paid by the highest bidder is equal to, or
more than the amount of the judgment or pro tanto if the price fetched at
the sale be less. Such extinction is not in any way dependent upon the
judgment creditor's receiving the amount realized, so that the conversion or
embezzlement of the proceeds of the sale by the sheriff does not revive the
judgment debt or render the judgment creditor liable anew therefor.
So, also, the taking by the sheriff of, say, personal property from the
judgment debtor for delivery to the judgment creditor, in fulfillment of the
verdict against him, extinguishes the debtor's liability; and the conversion of
said property by the sheriff, does not make said debtor responsible for
replacing the property or paying the value thereof.
In the instances where the Rules allow or direct payments to be made to the
sheriff, the payments may be made by check, but it goes without saying that
if the sheriff so desires, he may require payment to be made in lawful money.
If he accepts the check, he places himself in a position where he would be
liable to the judgment creditor if any damages are suffered by the latter as a
result of the medium in which payment was made (Javellana v. Mirasol, et
al., 40 Phil. 761). The validity of the payment made by the judgment debtor,
however, is in no wise affected and the latter is discharged from his
obligation to the judgment creditor as of the moment the check issued to the
sheriff is encashed and the proceeds are received by Id. office. The issuance
of the check to a person authorized to receive it (Art. 1240, Civil Code; See.
46 of the Code of Civil Procedure; Enage v. Vda y Hijos de Escano, 38 Phil.
657, cited in Javellana v. Mirasol, 40 Phil. 761) operates to release the
judgment debtor from any further obligations on the judgment.
The sheriff is an adjunct of the court; a court functionary whose competence
involves both discretion and personal liability (concurring opinion of J.
Fernando, citing Uy Piaoco v. Osmena, 9 Phil. 299, in Bagatsing v. Herrera, 65
SCRA 434). Being an officer of the court and acting within the scope of his
authorized functions, the sheriff s receipt of the checks in payment of the
judgment execution, may be deemed, in legal contemplation, as received by
the court itself (Lara v. Bayona, 10 May 1955, No. L- 10919).
That the sheriff functions as a conduit of the court is further underscored by
the fact that one of the requisites for appointment to the office is the
execution of a bond, "conditioned (upon) the faithful performance of his (the
appointee's) duties .. for the delivery or payment to Government, or the
person entitled thereto, of all properties or sums of money that shall
officially come into his hands" (sec. 330, Revised Administrative Code).
There is no question that the checks came into the sheriffs possession in his
official capacity. The court may require of the judgment debtor, in complying
with the judgment, no further burden than his vigilance in ensuring that the
person he is paying money or delivering property to is a person authorized by
the court to receive it. Beyond this, further expectations become
unreasonable. To my mind, a proposal that would make the judgment debtor
unqualifiedly the insurer of the judgment creditor's entitlement to the
judgment amount which is really what this case is all about begs the
question.
9
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 not thereby become negligent; it did not make the loss anymore possible
or probable than if it had instead delivered plain cash to the sheriffs.
It seems to me that the majority opinion's real premise is the unspoken one
that the judgment debtor should bear the risk of the fragility of the sheriff s
virtue until the money or property parted with by the judgment debtor
actually reaches the hands of the judgment creditor. This brings me back to
my earlier point that risk is most appropriately borne not by the judgment
debtor, nor indeed by the judgment creditor, but by the State itself. The
Court requires all sheriffs to post good and adequate fidelity bonds before
entering upon the performance of their duties and, presumably, to maintain
such bonds in force and effect throughout their stay in office.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
10
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.
 11

Melencio-Herrera, Gancayco, Sarmiento, Cortes, JJ., concurs. proof of such fact, and they did establish such fact in their
testimony . . . 11 Anent the funeral expenses, "(T)he expenses for the funeral
were likewise shouldered by the appellants (the private respondents). This
G.R. No. 82233 March 22, 1990
was never contradicted by the appellees (petitioners). . . . Payment (for
these) were made by the appellants, therefore, the reimbursement must
JOSE BARITUA and EDGAR BITANCOR, petitioners, accrue in their favor. 12
vs.
HONORABLE COURT OF APPEALS, NICOLAS NACARIO and VICTORIA RONDA
Consequently, the respondent appellate court ordered the petitioners to pay
NACARIO, respondents.
the private respondents P10,000.00 for the damage of the tricycle, P5,000.00
for "complete" funeral services, P450.00 for cemetery lot, P55.00 for oracion
Domingo Lucenario for petitioners. adulto, and P5,000.00 for attorney's fees. 13 The petitioners moved for
a reconsideration of the appellate court's decision 14 but their motion was
Ernesto A. Atienza for private respondents. denied. 15 Hence, this petition.

SARMIENTO, J.: The issue here is whether or not the respondent appellate court erred in
holding that the petitioners are still liable to pay the private respondents the
aggregate amount of P20,505.00 despite the agreement of extrajudicial
This petition for review on certiorari assails as erroneous and contrary to settlement between the petitioners and the victim's compulsory heirs.
existing relevant laws and applicable jurisprudence the decision 1 of the Court
of Appeals dated December 11, 1987 which reversed and set aside that of
the Regional Trial Court, Branch XXXII, at Pili, Camarines Sur. 2 The challenged The petition is meritorious.
decision adjudged the petitioners liable to the private respondents in the
total amount of P20,505.00 and for costs. Obligations are extinguished by various modes among them being by
payment. Article 1231 of the Civil Code of the Philippines provides:
The facts are as follows:
Art. 1231. Obligations are extinguished:
In the evening of November 7, 1979, the tricycle then being driven by
Bienvenido Nacario along the national highway at Barangay San Cayetano, in (1) By payment or performance;
Baao, Camarines Sur, figured in an accident with JB Bus No. 80 driven by
petitioner Edgar Bitancor and owned and operated by petitioner Jose
(2) By the loss of the thing due;
Baritua. 3 As a result of that accident Bienvenido and his passenger died 4 and
the tricycle was damaged. 5 No criminal case arising from the incident was
ever instituted. 6 (3) By the condonation or remission of the debt;

Subsequently, on March 27, 1980, as a consequence of the extra-judicial (4) By the confusion or merger of the rights of creditor
settlement of the matter negotiated by the petitioners and the bus insurer — and debtor;
Philippine First Insurance Company, Incorporated (PFICI for brevity) —
Bienvenido Nacario's widow, Alicia Baracena Vda. de Nacario, received
(5) By compensation;
P18,500.00. In consideration of the amount she received, Alicia executed on
March 27, 1980 a "Release of Claim" in favor of the petitioners and PFICI,
releasing and forever discharging them from all actions, claims, and demands (6) By novation.
arising from the accident which resulted in her husband's death and the
damage to the tricycle which the deceased was then driving. Alicia likewise (Emphasis ours.)
executed an affidavit of desistance in which she formally manifested her lack
of interest in instituting any case, either civil or criminal, against the
petitioners. 7 There is no denying that the petitioners had paid their obligation petition
arising from the accident that occurred on November 7, 1979. The only
question now is whether or not Alicia, the spouse and the one who received
On September 2, 1981, or about one year and ten months from the date of the petitioners' payment, is entitled to it.
the accident on November 7, 1979, the private respondents, who are the
parents of Bienvenido Nacario, filed a complaint for damages against the
petitioners with the then Court of First Instance of Camarines Sur. 8 In their Article 1240 of the Civil Code of the Philippines enumerates the persons to
complaint, the private respondents alleged that during the vigil for their whom payment to extinguish an obligation should be made.
deceased son, the petitioners through their representatives promised them
(the private respondents) that as extra-judicial settlement, they shall be Art 1240. Payment shall be made to the person in
indemnified for the death of their son, for the funeral expenses incurred by whose favor the obligation has been constituted, or his
reason thereof, and for the damage for the tricycle the purchase price of successor in interest, or any person authorized to
which they (the private respondents) only loaned to the victim. The receive it.
petitioners, however, reneged on their promise and instead negotiated and
settled their obligations with the long-estranged wife of their late son. The
Nacario spouses prayed that the defendants, petitioners herein, be ordered Certainly there can be no question that Alicia and her son with the deceased
to indemnify them in the amount of P25,000.00 for the death of their son are the successors in interest referred to in law as the persons authorized to
Bienvenido, P10,000.00 for the damaged tricycle, P25,000.00 for receive payment. The Civil Code states:
compensatory and exemplary damages, P5,000.00 for attorney's fees, and
for moral damages. 9 Article 887. The following are compulsory heirs:

After trial, the court a quo dismissed the complaint, holding that the 1. Legitimate children and descendants, with respect
payment by the defendants (herein petitioners) to the widow and her child, to their legitimate parents and ascendants;
who are the preferred heirs and successors-in-interest of the deceased
Bienvenido to the exclusion of his parents, the plaintiffs (herein private
2. In default of the foregoing, legitimate parents and
respondents), extinguished any claim against the defendants (petitioners). 10
ascendants with respect to their legitimate children
and decendants;
The parents appealed to the Court of Appeals which reversed the judgment
of the trial court. The appellate court ruled that the release executed by
3. The widow or widower;
Alicia Baracena Vda. de Nacario did not discharge the liability of the
petitioners because the case was instituted by the private respondents in
their own capacity and not as "heirs, representatives, successors, and 4. Acknowledged natural children and natural children
assigns" of Alicia; and Alicia could not have validly waived the damages being by legal fiction;
prayed for (by the private respondents) since she was not the one who
suffered these damages arising from the death of their son. Furthermore, the 5. Other illegitimate children referred to in Article 287.
appellate court said that the petitioners "failed to rebut the testimony of the
appellants (private respondents) that they were the ones who bought the
tricycle that was damaged in the incident. Appellants had the burden of
 12

Compulsory heirs mentioned in Nos. 3, 4 and 5 are not

April 19, 1983 Receipt No. 27331 for P8,0005
excluded by those in Nos. 1 and 2. Neither do they
exclude one another. (Emphasis ours.)
April 22, 1983 Receipt No. 27318 for P9,0006

Article 985. In default of legitimate children and April 27, 1983 Receipt No. 27339 for P4,5007
descendants of the deceased, his parents and
ascendants shall inherit from him, to the exclusion of April 30, 1983 Receipt No. 27346 for P3,4108
collateral relatives.

(Emphasis ours.)
It is patently clear that the parents of the deceased succeed only when the
latter dies without a legitimate descendant. On the other hand, the surviving
spouse concurs with all classes of heirs. As it has been established that
Bienvenido was married to Alicia and that they begot a child, the private
respondents are not successors-in-interest of Bienvenido; they are not
compulsory heirs. The petitioners therefore acted correctly in settling their
obligation with Alicia as the widow of Bienvenido and as the natural guardian
of their lone child. This is so even if Alicia had been estranged from
Bienvenido. Mere estrangement is not a legal ground for the disqualification
of a surviving spouse as an heir of the deceased spouse.
Defendant Francisco Culaba testified that he made the foregoing payments
to an SMC supervisor who came in an SMC van. He was then showed a list of
customers’ accountabilities which included his account. The defendant, in
good faith, then paid to the said supervisor, and he was, in turn, issued
genuine SMC liquidation receipts.
For its part, SMC submitted a publisher’s affidavit 9 to prove that the entire
booklet of TCSL Receipts bearing Nos. 27301-27350 were reported lost by it,
and that it caused the publication of the notice of loss in the July 9, 1983
issue of the Daily Express, as follows:
NOTICE OF LOSS

Neither could the private respondents, as alleged creditors of Bienvenido, OUR CUSTOMERS ARE HEREBY INFORMED THAT TEMPORARY
seek relief and compensation from the petitioners. While it may be true that CHARGE SALES LIQUIDATION RECEIPTS WITH SERIAL NOS. 27301-
the private respondents loaned to Bienvenido the purchase price of the 27350 HAVE BEEN LOST.
damaged tricycle and shouldered the expenses for his funeral, the said
purchase price and expenses are but money claims against the estate of their
deceased son. 16 These money claims are not the liabilities of the petitioners ANY TRANSACTION, THEREFORE, ENTERED INTO WITH THE USE
who, as we have said, had been released by the agreement of the extra- OF THE ABOVE RECEIPTS WILL NOT BE HONORED.
judicial settlement they concluded with Alicia Baracena Vda. de Nacario, the
victim's widow and heir, as well as the natural guardian of their child, her co- SAN MIGUEL CORPORATION
heir. As a matter of fact, she executed a "Release Of Claim" in favor of the BEER DIVISION
petitioners. Makati Beer Region10

WHEREFORE, the petition is GRANTED; the decision of the Court of Appeals is
REVERSED and SET ASIDE and the decision of the Regional Trial Court is
hereby REINSTATED. Costs against the private respondents.
SO ORDERED.
G.R. No. 125862             April 15, 2004
The Trial Court’s Ruling
After trial on the merits, the trial court rendered judgment in favor of SMC,
and held the Culaba spouses liable on the balance of its obligation, thus:
Wherefore, judgment is hereby rendered in favor of the plaintiff,
as follows:

FRANCISCO CULABA and DEMETRIA CULABA, doing business under the 1. Ordering defendants to pay the amount of P24,910.00 plus
name and style "Culaba Store", petitioners, legal interest of 6% per annum from April 12, 1983 until the whole
vs. amount is fully paid;
COURT OF APPEALS and SAN MIGUEL CORPORATION, respondents.
2. Ordering defendants to pay 20% of the amount due to plaintiff
as and for attorney’s fees plus costs.

DECISION SO ORDERED.11

CALLEJO, SR., J.:
This is a petition for review under Rule 45 of the Revised Rules of Civil
Procedure of the Decision1 of the Court of Appeals in CA-G.R. CV No. 19836
affirming in toto the Decision2 of the Regional Trial Court of Makati, Branch
138, in Civil Case No. 1033 for collection of sum of money, and the
Resolution3 denying the motion for reconsideration of the said decision.
According to the trial court, it was unusual that defendant Francisco Culaba
forgot the name of the collector to whom he made the payments and that he
did not require the said collector to print his name on the receipts. The court
also noted that although they were part of a single booklet, the TCS
Liquidation Receipts submitted by the defendants did not appear to have
been issued in their natural sequence. Furthermore, they were part of the
lost booklet receipts, which the public was duly warned of through the
Notice of Loss the plaintiff caused to be published in a daily newspaper. This
confirmed the plaintiff’s claim that the receipts presented by the defendants
were spurious ones.

The Undisputed Facts

The Case on Appeal

The spouses Francisco and Demetria Culaba were the owners and proprietors
On appeal, the appellants interposed the following assignment of errors:
of the Culaba Store and were engaged in the sale and distribution of San
Miguel Corporation’s (SMC) beer products. SMC sold beer products on credit
to the Culaba spouses in the amount of P28,650.00, as evidenced by I
Temporary Credit Invoice No. 42943.4 Thereafter, the Culaba spouses made a
partial payment of P3,740.00, leaving an unpaid balance of P24,910.00. As THE TRIAL COURT ERRED IN FINDING THAT THE RECEIPTS
they failed to pay despite repeated demands, SMC filed an action for PRESENTED BY DEFENDANTS EVIDENCING HIS PAYMENTS TO
collection of a sum of money against them before the RTC of Makati, Branch PLAINTIFF SAN MIGUEL CORPORATION, ARE SPURIOUS.
138.

II
The defendant-spouses denied any liability, claiming that they had already
paid the plaintiff in full on four separate occasions. To substantiate this claim,
the defendants presented four (4) Temporary Charge Sales (TCS) Liquidation THE TRIAL COURT ERRED IN CONCLUDING THAT PLAINTIFF-
Receipts, as follows: APPELLEE HAS SUFFICIENTLY PROVED ITS CAUSE OF ACTION
AGAINST THE DEFENDANTS.

III
THE TRIAL COURT ERRED IN ORDERING DEFENDANTS TO PAY 20%
OF THE AMOUNT DUE TO PLAINTIFF AS ATTORNEY’S FEES.12
The appellants asserted that while the trial court’s observations were true, it
was the usual business practice in previous transactions between them and
SMC. The SMC previously honored receipts not bearing the salesman’s name.
According to appellant Francisco Culaba, he even lost some of the receipts,
but did not encounter any problems.
According to appellant Francisco, he could not be faulted for paying the SMC
collector who came in a van and was in uniform, and that any regular
customer would, without any apprehension, transact with such an SMC
employee. Furthermore, the respective receipts issued to him at the time he
paid on the four occasions mentioned had not yet then been declared lost.
Thus, the subsequent publication in a daily newspaper declaring the booklets
lost did not affect the validity and legality of the payments made.
Accordingly, by its actuations, the SMC was estopped from questioning the
legality of the payments and had no cause of action against the appellants.
Anent the issue of attorney’s fees, the order of the trial court for payment
thereof is without basis. According to the appellant, the provision for
attorney’s fees is a contingent fee, already provided for in the SMC’s contract
with the law firm. To further order them to pay 20% of the amount due as
attorney’s fees is double payment, tantamount to undue enrichment and
therefore improper.13
The appellee, for its part, contended that the primary issue in the case at bar
revolved around the basic and fundamental principles of agency.14 It was
incumbent upon the defendants-appellants to exercise ordinary prudence
and reasonable diligence to verify and identify the extent of the alleged
agent’s authority. It was their burden to establish the true identity of the
assumed agent, and this could not be established by mere representation,
rumor or general reputation. As they utterly failed in this regard, the
appellants must suffer the consequences.
The Court of Appeals affirmed the decision of the trial court, thus:
In the face of the somewhat tenuous evidence presented by the
appellants, we cannot fault the lower court for giving more weight
to appellee’s testimonial and documentary evidence, all of which
establish with some degree of preponderance the existence of the
account sued upon.
ALL CONSIDERED, we cannot find any justification to reject the
factual findings of the lower court to which we must accord
respect, for which reason, the judgment appealed from is hereby
AFFIRMED in all respects.
SO ORDERED.15
Hence, the instant petition.
The petitioners pose the following issues for the Court’s resolution:
I. WHETHER OR NOT THE RESPONDENT HAD PROVEN BY
PREPONDERANT EVIDENCE THAT IT HAD PROPERLY AND TIMELY
NOTIFIED PETITIONER OF LOST BOOKLET OF RECEIPTS
II. WHETHER OR NOT RESPONDENT HAD PROVEN BY
PREPONDERANT EVIDENCE THAT PETITIONER WAS REMISS IN THE
PAYMENT OF HIS ACCOUNTS TO ITS AGENT.16
According to the petitioners, receiving receipts from the private respondent’s
agents instead of its salesmen was a usual occurrence, as they had been
operating the store since 1979. Thus, on four occasions in April 1983, when
an agent of the respondent came to the store wearing an SMC uniform and
driving an SMC van, petitioner Francisco Culaba, without question, paid his
accounts. He received the receipts without fear, as they were similar to what
he used to receive before. Furthermore, the petitioners assert that, common
experience will attest that unless the attention of the customers is called for,
they would not take note of the serial number of the receipts.
The petitioners contend that the private respondent advertised its warning
to the public only after the damage was done, or on July 9, 1993. Its belated
notice showed its glaring lack of interest or concern for its customers’
welfare, and, in sum, its negligence.
13
Anent the second issue, petitioner Francisco Culaba avers that the agent to
whom the accounts were paid had all the physical and material attributes or
indications of a representative of the private respondent, leaving no doubt
that he was duly authorized by the latter. Petitioner Francisco Culaba’s
testimony that "he does not necessarily check the contents of the receipts
issued to him except for the amount indicated if [the] same accurately
reflects his actual payment" is a common attitude of customers. He could,
thus, not be faulted for paying the private respondent’s agent on four
occasions. Petitioner Francisco Culaba asserts that he made the payment in
good faith, to an agent who issued SMC receipts which appeared to be
genuine. Thus, according to the petitioners, they had duly paid their
obligation in accordance with Articles 1240 and 1242 of the New Civil Code.
The private respondent, for its part, avers that the burden of proving
payment is with the debtor, in consonance with the express provision of
Article 1233 of the New Civil Code. The petitioners miserably failed to prove
the self-serving allegation that they already paid their liability to the private
respondent. Furthermore, under normal circumstances, an obligor would not
just pay a substantial amount to someone whom he saw for the first time,
without even asking for the latter’s name.
The Ruling of the Court
The petition is dismissed.
The petitioners question the findings of the Court of Appeals as to whether
the payment of the petitioners’ obligation to the private respondent was
properly made, thus, extinguishing the same. This is clearly a factual issue,
and beyond the purview of the Court to delve into. This is in consonance with
the well-settled rule that findings of fact of the trial court, especially when
affirmed by the Court of Appeals, are accorded the highest degree of respect,
and generally will not be disturbed on appeal. Such findings are binding and
conclusive on the Court.17 Furthermore, it is not the Court’s function under
Rule 45 of the Rules of Court, as amended, to review, examine and evaluate
or weigh the probative value of the evidence presented.18
To reiterate, the issue being raised by the petitioners does not involve a
question of law, but a question of fact, not cognizable by this Court in a
petition for review under Rule 45. The jurisdiction of the Court in such a case
is limited to reviewing only errors of law, unless the factual findings being
assailed are not supported by evidence on record or the impugned judgment
is based on a misapprehension of facts.19
A careful study of the records of the case reveal that the appellate court
affirmed the trial court’s factual findings as follows:
First. Receipts Nos. 27331, 27318, 27339 and 27346 were included in the
private respondent’s lost booklet, which loss was duly advertised in a
newspaper of general circulation; thus, the private respondent could not
have officially issued them to the petitioners to cover the alleged payments
on the dates appearing thereon.
Second. There was something amiss in the way the receipts were issued to
the petitioners, as one receipt bearing a higher serial number was issued
ahead of another receipt bearing a lower serial number, supposedly covering
a later payment. The petitioners failed to explain the apparent mix-up in
these receipts, and no attempt was made in this regard.
Third. The fact that the salesman’s name was invariably left blank in the four
receipts and that the petitioners could not even remember the name of the
supposed impostor who received the said payments strongly argue against
the veracity of the petitioners’ claim.
We find no cogent reason to reverse the said findings.
The dismissal of the petition is inevitable even upon close perusal of the
merits of the case.
Payment is a mode of extinguishing an obligation.20 Article 1240 of the Civil
Code provides that 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.21 In this case, the payments were purportedly made
to a "supervisor" of the private respondent, who was clad in an SMC uniform
and drove an SMC van. He appeared to be authorized to accept payments as
he showed a list of customers’ accountabilities and even issued SMC
liquidation receipts which looked genuine. Unfortunately for petitioner
Francisco Culaba, he did not ascertain the identity and authority of the said
supervisor, nor did he ask to be shown any identification to prove that the
latter was, indeed, an SMC supervisor. The petitioners relied solely on the
man’s representation that he was collecting payments for SMC. Thus, the

payments the petitioners claimed they made were not the payments that
discharged their obligation to the private respondent.
The basis of agency is representation.22 A person dealing with an agent is put
upon inquiry and must discover upon his peril the authority of the agent.23 In
the instant case, the petitioners’ loss could have been avoided if they had
simply exercised due diligence in ascertaining the identity of the person to
whom they allegedly made the payments. The fact that they were parting
with valuable consideration should have made them more circumspect in
handling their business transactions. Persons dealing with an assumed agent
are bound at their peril to ascertain not only the fact of agency but also the
nature and extent of authority, and in case either is controverted, the burden
of proof is upon them to establish it. 24 The petitioners in this case failed to
discharge this burden, considering that the private respondent vehemently
denied that the payments were accepted by it and were made to its
authorized representative.
Negligence is the omission to do something which a reasonable man, guided
by those considerations which ordinarily regulate the conduct of human
affairs, would do, or the doing of something, which a prudent and reasonable
man would not do.25 In the case at bar, the most prudent thing the
petitioners should have done was to ascertain the identity and authority of
the person who collected their payments. Failing this, the petitioners cannot
claim that they acted in good faith when they made such payments. Their
claim therefor is negated by their negligence, and they are bound by its
consequences. Being negligent in this regard, the petitioners cannot seek
relief on the basis of a supposed agency.26
WHEREFORE, the instant petition is hereby DENIED. The assailed Decision
dated April 16, 1996, and the Resolution dated July 19, 1996 of the Court of
Appeals are AFFIRMED. Costs against the petitioners.
SO ORDERED.
G.R. No. 175021               June 15, 2011
REPUBLIC OF THE PHILIPPINES, represented by the Chief of the Philippine
National Police, Petitioner,
vs.
THI THU THUY T. DE GUZMAN, Respondent.
DECISION
LEONARDO-DE CASTRO, J.:
This is a Petition for Review on Certiorari1 filed by Republic of the Philippines,
as represented by the Chief of the Philippine National Police (PNP), of the
September 27, 2006 Decision2 of the Court of Appeals in CA-G.R. CV No.
80623, which affirmed with modification the September 8, 2003 Decision3 of
the Regional Trial Court (RTC), Branch 222, of Quezon City in Civil Case No.
Q99-37717.
Respondent is the proprietress of Montaguz General Merchandise (MGM), 4 a
contractor accredited by the PNP for the supply of office and construction
materials and equipment, and for the delivery of various services such as
printing and rental, repair of various equipment, and renovation of buildings,
facilities, vehicles, tires, and spare parts.5
On December 8, 1995, the PNP Engineering Services (PNPES), released a
Requisition and Issue Voucher6 for the acquisition of various building
materials amounting to Two Million Two Hundred Eighty-Eight Thousand Five
Hundred Sixty-Two Pesos and Sixty Centavos (₱2,288,562.60) for the
construction of a four-storey condominium building with roof deck at Camp
Crame, Quezon City.7
Respondent averred that on December 11, 1995, MGM and petitioner,
represented by the PNP, through its chief, executed a Contract of
Agreement8 (the Contract) wherein MGM, for the price of ₱2,288,562.60,
undertook to procure and deliver to the PNP the construction materials
itemized in the purchase order9 attached to the Contract. Respondent
claimed that after the PNP Chief approved the Contract and purchase
order,10 MGM, on March 1, 1996, proceeded with the delivery of the
construction materials, as evidenced by Delivery Receipt Nos. 151-
153,11 Sales Invoice Nos. 038 and 041,12 and the "Report of Public Property
Purchase"13 issued by the PNP’s Receiving and Accounting Officers to their
Internal Auditor Chief. Respondent asseverated that following the PNP’s
inspection of the delivered materials on March 4, 1996, 14 the PNP issued two
Disbursement Vouchers; one in the amount of ₱2,226,147.26 in favor of
MGM,15 and the other, 16 in the amount of ₱62,415.34, representing the
14
three percent (3%) withholding tax, in favor of the Bureau of Internal
Revenue (BIR).17
On November 5, 1997, the respondent, through counsel, sent a letter dated
October 20, 199718 to the PNP, demanding the payment of ₱2,288,562.60 for
the construction materials MGM procured for the PNP under their December
1995 Contract.
On November 17, 1997, the PNP, through its Officer-in-Charge, replied 19 to
respondent’s counsel, informing her of the payment made to MGM via Land
Bank of the Philippines (LBP) Check No. 0000530631, 20 as evidenced by
Receipt No. 001, 21 issued by the respondent to the PNP on April 23, 1996.22
On November 26, 1997, respondent, through counsel, responded by
reiterating her demand23 and denying having ever received the LBP check,
personally or through an authorized person. She also claimed that Receipt
No. 001, a copy of which was attached to the PNP’s November 17, 1997
letter, could not support the PNP’s claim of payment as the aforesaid receipt
belonged to Montaguz Builders, her other company, which was also doing
business with the PNP, and not to MGM, with which the contract was made.
On May 5, 1999, respondent filed a Complaint for Sum of Money against the
petitioner, represented by the Chief of the PNP, before the RTC, Branch 222
of Quezon City.24 This was docketed as Civil Case No. Q99-37717.
The petitioner filed a Motion to Dismiss25 on July 5, 1999, on the ground that
the claim or demand set forth in respondent’s complaint had already been
paid or extinguished,26 as evidenced by LBP Check No. 0000530631 dated
April 18, 1996, issued by the PNP to MGM, and Receipt No. 001, which the
respondent correspondingly issued to the PNP. The petitioner also argued
that aside from the fact that the respondent, in her October 20, 1997 letter,
demanded the incorrect amount since it included the withholding tax paid to
the BIR, her delay in making such demand "[did] not speak well of the
worthiness of the cause she espouse[d]."27
Respondent opposed petitioner’s motion to dismiss in her July 12, 1999
Opposition28and September 10, 1999 Supplemental Opposition to Motion to
Dismiss.29 Respondent posited that Receipt No. 001, which the petitioner
claimed was issued by MGM upon respondent’s receipt of the LBP check,
was, first, under the business name "Montaguz Builders," an entity separate
from MGM. Next, petitioner’s allegation that she received the LBP check on
April 19, 1996 was belied by the fact that Receipt No. 001, which was
supposedly issued for the check, was dated four days later, or April 23, 1996.
Moreover, respondent averred, the PNP’s own Checking Account Section
Logbook or the Warrant Register, showed that it was one Edgardo Cruz (Cruz)
who signed for the check due to MGM, 30 contrary to her usual practice of
personally receiving and signing for checks payable to her companies.
After conducting hearings on the Motion to Dismiss, the RTC issued an
Order31 on May 4, 2001, denying the petitioner’s motion for lack of merit.
The petitioner thereafter filed its Answer,32 wherein it restated the same
allegations in its Motion to Dismiss.
Trial on the merits followed the pre-trial conference, which was terminated
on June 25, 2002 when the parties failed to arrive at an amicable
settlement.33
On September 3, 2002, shortly after respondent was sworn in as a witness,
and after her counsel formally offered her testimony in evidence, Atty.
Norman Bueno, petitioner’s counsel at that time, made the following
stipulations in open court:
Atty. Bueno (To Court)
Your Honor, in order to expedite the trial, we will admit that this witness was
contracted to deliver the construction supplies or materials. We will admit
that she complied, that she actually delivered the materials. We will admit
that Land Bank Corporation check was issued although we will not admit that
the check was not released to her, as [a] matter of fact, we have the copy of
the check. We will admit that Warrant Register indicated that the check was
released although we will not admit that the check was not received by the
[respondent].
Court (To Atty. Albano)
So, the issues here are whether or not the [respondent] received the check
for the payment of the construction materials or supplies and who received
the same. That is all.

Atty. Albano (To Court)
Yes, your Honor.
Court (To Atty. Albano)
I think we have an abbreviated testimony here. Proceed.34 (Emphasis ours.)
The stipulations made by the petitioner through Atty. Bueno were in
consonance with the admissions it had previously made, also through Atty.
Bueno, in its Answer,35 and pre-trial brief36:
Answer:
IX
It ADMITS the allegation in paragraph 9 of the Complaint that [respondent]
delivered to the PNP Engineering Service the construction materials. It also
ADMITS the existence of Receipt Nos. 151, 152 and 153 alleged in the same
paragraph, copies of which are attached to the Complaint as Annexes "G,"
"G-1" and "G-2."37 (Emphasis ours.)
Pre-trial Brief:
III
ADMISSIONS
3.1. Facts and/or documents admitted
For brevity, [petitioner] admit[s] only the allegations in [respondent’s]
Complaint and the annexes thereto that were admitted in the
Answer.38 (Emphases ours.)
With the issue then confined to whether respondent was paid or not, the
RTC proceeded with the trial.
Respondent, in her testimony, narrated that on April 18, 1996, she went to
the PNP Finance Center to claim a check due to one of her companies,
Montaguz Builders. As the PNP required the issuance of an official receipt
upon claiming its checks, respondent, in preparation for the PNP check she
expected, already signed Montaguz Builders Official Receipt No. 001, albeit
the details were still blank. However, upon arriving at the PNP Finance
Center, respondent was told that the check was still with the LBP, which
could not yet release it. Respondent then left for the Engineering Services
Office to see Captain Rama, along with Receipt No. 001, which she had not
yet issued.39 Respondent claimed that after some time, she left her
belongings, including her receipt booklet, at a bench in Captain Rama’s office
when she went around the Engineering Office to talk to some other
people.40 She reasoned that since she was already familiar and comfortable
with the people in the PNPES Office, she felt no need to ask anyone to look
after her belongings, as it was her "normal practice"41 to leave her belongings
in one of the offices there. The next day, respondent alleged that when she
returned for the check due to Montaguz Builders that she was not able to
claim the day before, she discovered for the first time that Receipt No. 001,
which was meant for that check, was missing. Since she would not be able to
claim her check without issuing a receipt, she just informed the releaser of
the missing receipt and issued Receipt No. 002 in its place.42 After a few
months, respondent inquired with the PNP Finance Center about the
payment due to MGM under the Contract of December 1995 and was
surprised to find out that the check payable to MGM had already been
released. Upon making some inquiries, respondent learned that the check,
payable to MGM, in the amount of ₱2,226,147.26, was received by Cruz, who
signed the PNP’s Warrant Register. Respondent admitted to knowing Cruz, as
he was connected with Highland Enterprises, a fellow PNP-accredited
contractor. However, she denied ever having authorized Cruz or Highland
Enterprises to receive or claim any of the checks due to MGM or Montaguz
Builders.43 When asked why she had not filed a case against Cruz or Herminio
Reyes, the owner of Highland Enterprises, considering the admitted fact that
Cruz claimed the check due to her, respondent declared that there was no
reason for her to confront them as it was the PNP’s fault that the check was
released to the wrong person. Thus, it was the PNP’s problem to find out
where the money had gone, while her course of action was to go after the
PNP, as the party involved in the Contract.44
On April 29, 2003, petitioner presented Ms. Jesusa Magtira, who was then
the "check releaser"45 of the PNP, to prove that the respondent received the
LBP check due to MGM, and that respondent herself gave the check to
Cruz.46 Ms. Magtira testified that on April 23, 1996, she released the LBP
15
check payable to the order of MGM, in the amount of ₱2,226,147.26, to the
respondent herein, whom she identified in open court. She claimed that
when she released the check to respondent, she also handed her a voucher,
and a logbook also known as the Warrant Register, for signing. 47 When asked
why Cruz was allowed to sign for the check, Ms. Magtira explained that this
was allowed since the respondent already gave her the official receipt for the
check, and it was respondent herself who gave the logbook to Cruz for
signing.48
The petitioner next presented Edgardo Cruz for the purpose of proving that
the payment respondent was claiming rightfully belonged to Highland
Enterprises. Cruz testified that Highland Enterprises had been an accredited
contractor of the PNP since 1975. In 1995, Cruz claimed that the PNPES was
tasked to construct "by administration" a condominium building. This meant
that the PNPES had to do all the work, from the canvassing of the materials
to the construction of the building. The PNPES allegedly lacked the funds to
do this and so asked for Highland Enterprises’s help. 49 In a meeting with its
accredited contractors, the PNPES asked if the other contractors would agree
to the use of their business name50 for a two percent (2%) commission of the
purchase order price to avoid the impression that Highland Enterprises was
monopolizing the supply of labor and materials to the PNP.51 Cruz alleged
that on April 23, 1996, he and the respondent went to the PNP Finance
Center to claim the LBP check due to MGM. Cruz said that the respondent
handed him the already signed Receipt No. 001, which he filled up. He
claimed that the respondent knew that the LBP check was really meant for
Highland Enterprises as she had already been paid her 2% commission for the
use of her business name in the concerned transaction.52
On September 8, 2003, the RTC rendered its Decision, the dispositive of
which reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of
[respondent] and against [petitioner] ordering the latter to pay [respondent]
the following sums:
(1) ₱2,226,147.26 representing the principal sum plus interest at
14% per annum from April 18, 1996 until the same shall have
been fully paid;
(2) 20% of the sum to be collected as attorney’s fees; and,
(3) Costs of suit.53
The RTC declared that while Cruz’s testimony seemed to offer a plausible
explanation on how and why the LBP check ended up with him, the
petitioner, already admitted in its Answer, and Pre-trial Brief, that MGM, did
in fact deliver the construction materials worth ₱2,288,562.60 to the PNP.
The RTC also pointed out the fact that the petitioner made the same
admissions in open court to expedite the trial, leaving only one issue to be
resolved: whether the respondent had been paid or not. Since this was the
only issue, the RTC said that it had no choice but to go back to the
documents and the "documentary evidence clearly indicates that the check
subject of this case was never received by [respondent]."54 In addition, the
PNP’s own Warrant Register showed that it was Edgardo Cruz who received
the LBP check, and Receipt No. 001 submitted by the petitioner to support its
claim was not issued by MGM, but by Montaguz Builders, a different entity.
Finally, the RTC held that Cruz’s testimony, which appeared to be an
afterthought to cover up the PNP’s blunder, were irreconcilable with the
petitioner’s earlier declarations and admissions, hence, not credit-worthy.
The petitioner appealed this decision to the Court of Appeals, which affirmed
with modification the RTC’s ruling on September 27, 2006:
WHEREFORE, the decision appealed from is AFFIRMED with the
MODIFICATION that the 14% interest per annum imposed on the principal
amount is ordered reduced to 12%, computed from November 16, 1997 until
fully paid. The order for the payment of attorney’s fees and costs of the suit
is DELETED.55
The Court of Appeals, in deciding against the petitioner, held that the
petitioner’s admissions and declarations, made in various stages of the
proceedings are express admissions, which cannot be overcome by
allegations of respondent’s implied admissions. Moreover, petitioner cannot
controvert its own admissions and it is estopped from denying that it had a
contract with MGM, which MGM duly complied with. The Court of Appeals
agreed with the RTC that the real issue for determination was whether the
petitioner was able to discharge its contractual obligation with the
respondent. The Court of Appeals held that while the PNP’s own Warrant
Register disclosed that the payment due to MGM was received by Cruz, on
behalf of Highland Enterprises, the PNP’s contract was clearly with MGM,
and not with Highland Enterprises. Thus, in order to extinguish its obligation,

the petitioner should have directed its payment to MGM unless MGM
authorized a third person to accept payment on its behalf.
The petitioner is now before this Court, praying for the reversal of the lower
courts’ decisions on the ground that "the Court of Appeals committed a
serious error in law by affirming the decision of the trial court."56
THE COURT’S RULING:
This case stemmed from a contract executed between the respondent and
the petitioner. While the petitioner, in proclaiming that the respondent’s
claim had already been extinguished, initially insisted on having fulfilled its
contractual obligation, it now contends that the contract it executed with the
respondent is actually a fictitious contract to conceal the fact that only one
contractor will be supplying all the materials and labor for the PNP
condominium project.
Both the RTC and the Court of Appeals upheld the validity of the contract
between the petitioner and the respondent on the strength of the
documentary evidence presented and offered in Court and on petitioner’s
own stipulations and admissions during various stages of the proceedings.
It is worthy to note that while this petition was filed under Rule 45 of the
Rules of Court, the assertions and arguments advanced herein are those that
will necessarily require this Court to re-evaluate the evidence on record.
It is a well-settled rule that in a petition for review under Rule 45, only
questions of law may be raised by the parties and passed upon by this
Court.57
This Court has, on many occasions, distinguished between a question of law
and a question of fact. We held that when there is doubt as to what the law
is on a certain state of facts, then it is a question of law; but when the doubt
arises as to the truth or falsity of the alleged facts, then it is a question of
fact.58 "Simply put, when there is no dispute as to fact, the question of
whether or not the conclusion drawn therefrom is correct, is a question of
law."59 To elucidate further, this Court, in Hko Ah Pao v. Ting60 said:
One test to determine if there exists a question of fact or law in a given case
is whether the Court can resolve the issue that was raised without having to
review or evaluate the evidence, in which case, it is a question of law;
otherwise, it will be a question of fact. Thus, the petition must not involve
the calibration of the probative value of the evidence presented. In addition,
the facts of the case must be undisputed, and the only issue that should be
left for the Court to decide is whether or not the conclusion drawn by the CA
from a certain set of facts was appropriate.61 (Emphases ours.)
In this case, the circumstances surrounding the controversial LBP check are
central to the issue before us, the resolution of which, will require a perusal
of the entire records of the case including the transcribed testimonies of the
witnesses. Since this is an appeal via certiorari, questions of fact are not
reviewable. As a rule, the findings of fact of the Court of Appeals are final and
conclusive62 and this Court will only review them under the following
recognized exceptions: (1) when the inference made is manifestly mistaken,
absurd or impossible; (2) when there is a grave abuse of discretion; (3) when
the finding is grounded entirely on speculations, surmises or conjectures; (4)
when the judgment of the Court of Appeals is based on misapprehension of
facts; (5) when the findings of fact are conflicting; (6) when the Court of
Appeals, in making its findings, went beyond the issues of the case and the
same is contrary to the admissions of both appellant and appellee; (7) when
the findings of the Court of Appeals are contrary to those of the trial court;
(8) when the findings of fact are conclusions without citation of specific
evidence on which they are based; (9) when the Court of Appeals manifestly
overlooked certain relevant facts not disputed by the parties and which, if
properly considered, would justify a different conclusion; and (10) when the
findings of fact of the Court of Appeals are premised on the absence of
evidence and are contradicted by the evidence on record.63
Although petitioner’s sole ground to support this petition was stated in such
a manner as to impress upon this Court that the Court of Appeals committed
an error in law, what the petitioner actually wants us to do is to review and
re-examine the factual findings of both the RTC and the Court of Appeals.
Since the petitioner has not shown this Court that this case falls under any of
the enumerated exceptions to the rule, we are constrained to uphold the
facts as established by both the RTC and the Court of Appeals, and,
consequently, the conclusions reached in the appealed decision.
Nonetheless, even if we were to exercise utmost liberality and veer away
from the rule, the records will show that the petitioner had failed to establish
16
its case by a preponderance of evidence.64 Section 1, Rule 133 of the Revised
Rules of Court provides the guidelines in determining preponderance of
evidence:
SECTION 1. Preponderance of evidence, how determined.— In civil cases, the
party having the burden of proof must establish his case by a preponderance
of evidence. In determining where the preponderance or superior weight of
evidence on the issues involved lies, the court may consider all the facts and
circumstances of the case, the witnesses’ manner of testifying, their
intelligence, their means and opportunity of knowing the facts to which they
are testifying, the nature of the facts to which they testify, the probability or
improbability of their testimony, their interest or want of interest, and also
their personal credibility so far as the same may legitimately appear upon the
trial. The court may also consider the number of witnesses, though the
preponderance is not necessarily with the greater number.
Expounding on the concept of preponderance of evidence, this Court in
Encinas v. National Bookstore, Inc.,65 held:
"Preponderance of evidence" is the weight, credit, and value of the
aggregate evidence on either side and is usually considered to be
synonymous with the term "greater weight of the evidence" or "greater
weight of the credible evidence." Preponderance of evidence is a phrase
which, in the last analysis, means probability of the truth. It is evidence which
is more convincing to the court as worthy of belief than that which is offered
in opposition thereto.66
The petitioner avers that the Court of Appeals should not have relied
"heavily, if not solely"67 on the admissions made by petitioner’s former
counsel, thereby losing sight of the "secret agreement" between the
respondent and Highland Enterprises, which explains why all the
documentary evidence were in respondent’s name.68
The petitioner relies mainly on Cruz’s testimony to support its allegations.
Not only did it not present any other witness to corroborate Cruz, but it also
failed to present any documentation to confirm its story. It is doubtful that
the petitioner or the contractors would enter into any "secret agreement"
involving millions of pesos based purely on verbal affirmations. Meanwhile,
the respondent not only presented all the documentary evidence to prove
her claims, even the petitioner repeatedly admitted that respondent had
fully complied with her contractual obligations.
The petitioner argued that the Court of Appeals should have appreciated the
clear and adequate testimony of Cruz, and should have given it utmost
weight and credit especially since his testimony was a "judicial admission
against interest – a primary evidence which should have been accorded full
evidentiary value."69
The trial court’s appreciation of the witnesses’ testimonies is entitled to the
highest respect since it was in a better position to assess their
credibility.70 The RTC held Cruz’s testimony to be "not credit worthy"71 for
being irreconcilable with petitioner’s earlier admissions. Contrary to
petitioner’s contentions, Cruz’s testimony cannot be considered as a judicial
admission against his interest as he is neither a party to the case nor was his
admission against his own interest, but actually against either the
petitioner’s or the respondent’s interest. Petitioner’s statements on the
other hand, were deliberate, clear, and unequivocal and were made in the
course of judicial proceedings; thus, they qualify as judicial admissions. 72 In
Alfelor v. Halasan,73 this Court held that:
A party who judicially admits a fact cannot later challenge that fact as judicial
admissions are a waiver of proof; production of evidence is dispensed with. A
judicial admission also removes an admitted fact from the field of
controversy. Consequently, an admission made in the pleadings cannot be
controverted by the party making such admission and are conclusive as to
such party, and all proofs to the contrary or inconsistent therewith should be
ignored, whether objection is interposed by the party or not. The allegations,
statements or admissions contained in a pleading are conclusive as against
the pleader. A party cannot subsequently take a position contrary of or
inconsistent with what was pleaded.74
The petitioner admitted to the existence and validity of the Contract of
Agreement executed between the PNP and MGM, as represented by the
respondent, on December 11, 1995. It likewise admitted that respondent
delivered the construction materials subject of the Contract, not once, but
several times during the course of the proceedings. The only matter
petitioner assailed was respondent’s allegation that she had not yet been
paid. If Cruz’s testimony were true, the petitioner should have put
respondent in her place the moment she sent a letter to the PNP, demanding
payment for the construction materials she had allegedly delivered. Instead,
the petitioner replied that it had already paid respondent as evidenced by

the LBP check and the receipt she supposedly issued. This line of defense
continued on, with the petitioner assailing only the respondent’s claim of
nonpayment, and not the rest of respondent’s claims, in its motion to
dismiss, its answer, its pre-trial brief, and even in open court during the
respondent’s testimony. Section 4, Rule 129 of the Rules of Court states:
SECTION 4. Judicial Admissions.–An admission, verbal or written, made by a
party in the course of the proceedings in the same case, does not require
proof. The admission may be contradicted only by showing that it was made
through palpable mistake or that no such admission was made.
Petitioner’s admissions were proven to have been made in various stages of
the proceedings, and since the petitioner has not shown us that they were
made through palpable mistake, they are conclusive as to the petitioner.
Hence, the only question to be resolved is whether the respondent was paid
under the December 1995 Contract of Agreement.
The RTC and the Court of Appeals correctly ruled that the petitioner’s
obligation has not been extinguished. The petitioner’s obligation consists of
payment of a sum of money. In order for petitioner’s payment to be effective
in extinguishing its obligation, it must be made to the proper person. Article
1240 of the Civil Code states:
Art. 1240. 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.
In Cembrano v. City of Butuan,75 this Court elucidated on how payment will
effectively extinguish an obligation, to wit:
Payment made by the debtor to the person of the creditor or to one
authorized by him or by the law to receive it extinguishes the obligation.
When payment is made to the wrong party, however, the obligation is not
extinguished as to the creditor who is without fault or negligence even if the
debtor acted in utmost good faith and by mistake as to the person of the
creditor or through error induced by fraud of a third person.
In general, a payment in order to be effective to discharge an obligation,
must be made to the proper person. Thus, payment must be made to the
obligee himself or to an agent having authority, express or implied, to receive
the particular payment. 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. The receipt of
money due on a judgment by an officer authorized by law to accept it will,
therefore, satisfy the debt.76
The respondent was able to establish that the LBP check was not received by
her or by her authorized personnel. The PNP’s own records show that it was
claimed and signed for by Cruz, who is openly known as being connected to
Highland Enterprises, another contractor. Hence, absent any showing that
the respondent agreed to the payment of the contract price to another
person, or that she authorized Cruz to claim the check on her behalf, the
payment, to be effective must be made to her.77
The petitioner also challenged the RTC’s findings, on the ground that it
"overlooked material fact and circumstance of significant weight and
substance."78 Invoking the doctrine of adoptive admission, the petitioner
pointed out that the respondent’s inaction towards Cruz, whom she has
known to have claimed her check as early as 1996, should be taken against
her. Finally, the petitioner contends that Cruz’s testimony should be taken
against respondent as well, under Rule 130, Sec. 32 of the Revised Rules on
Evidence, since she has not presented any "controverting evidence x x x
notwithstanding that she personally heard it."79
The respondent has explained her inaction towards Cruz and Highland
Enterprises. Both the RTC and the Court of Appeals have found her
explanation sufficient and this Court finds no cogent reason to overturn the
assessment by the trial court and the Court of Appeals of the respondent’s
testimony. It may be recalled that the respondent argued that since it was
the PNP who owed her money, her actions should be directed towards the
PNP and not Cruz or Highland Enterprises, against whom she has no
adequate proof.80 Respondent has also adequately explained her delay in
filing an action against the petitioner, particularly that she did not want to
prejudice her other pending transactions with the PNP.81
The petitioner claims that the RTC "overlooked material fact and
circumstance of significant weight and substance,"82 but it ignores all the
documentary evidence, and even its own admissions, which are evidence of
the greater weight and substance, that support the conclusions reached by
both the RTC and the Court of Appeals.
17
We agree with the Court of Appeals that the RTC erred in the interest rate
and other monetary sums awarded to respondent as baseless. However, we
must further modify the interest rate imposed by the Court of Appeals
pursuant to the rule laid down in Eastern Shipping Lines, Inc. v. Court of
Appeals83:
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-
contracts, delicts or quasi-delicts is breached, the contravenor can be held
liable for damages. The provisions under Title XVIII on "Damages" of the Civil
Code govern in determining the measure of recoverable damages.
II. With regard particularly to an award of interest in the concept of actual
and compensatory damages, the rate of interest, as well as the accrual
thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment
of a sum of money, i.e., a loan or forbearance of money, the
interest due should be that which may have been stipulated in
writing. Furthermore, the interest due shall itself earn legal
interest from the time it is judicially demanded. In the absence of
stipulation, the rate of interest shall be 12% per annum to be
computed from default, i.e., from judicial or extrajudicial demand
under and subject to the provisions of Article 1169 of the Civil
Code.
2. When an obligation, not constituting a loan or forbearance of
money, is breached, an interest on the amount of damages
awarded may be imposed at the discretion of the court at the rate
of 6% per annum. No interest, however, shall be adjudged on
unliquidated claims or damages except when or until the demand
can be established with reasonable certainty. Accordingly, where
the demand is established with reasonable certainty, the interest
shall begin to run from the time the claim is made judicially or
extrajudicially (Art. 1169, Civil Code) but when such certainty
cannot be so reasonably established at the time the demand is
made, the interest shall begin to run only from the date the
judgment of the court is made (at which time the quantification of
damages may be deemed to have been reasonably ascertained).
The actual base for the computation of legal interest shall, in any
case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money
becomes final and executory, the rate of legal interest, whether
the case falls under paragraph 1 or paragraph 2, above, shall be
12% per annum from such finality until its satisfaction, this
interim period being deemed to be by then an equivalent to a
forbearance of credit.84
Since the obligation herein is for the payment of a sum of money, the legal
interest rate to be imposed, under Article 2209 of the Civil Code is six percent
(6%) per annum:
Art. 2209. If the obligation consists in the payment of a sum of money, and
the debtor incurs in delay, the indemnity for damages, there being no
stipulation to the contrary, shall be the payment of the interest agreed upon,
and in the absence of stipulation, the legal interest, which is six per cent per
annum.
Following the guidelines above, the legal interest of 6% per annum is to be
imposed from November 16, 1997, the date of the last demand, and 12% in
lieu of 6% from the date this decision becomes final until fully paid.lawphi1
Petitioner’s allegations of sham dealings involving our own government
agencies are potentially disturbing and alarming. If Cruz’s testimony were
true, this should be a lesson to the PNP not to dabble in spurious
transactions. Obviously, if it can afford to give a 2% commission to other
contractors for the mere use of their business names, then the petitioner is
disbursing more money than it normally would in a legitimate transaction. It
is recommended that the proper agency investigate this matter and hold the
involved personnel accountable to avoid any similar occurrence in the future.
WHEREFORE, the Petition is hereby DENIED and the Decision of the Court of
Appeals in C.A. G.R. CV No. 80623 dated September 27, 2006 is AFFIRMED
with the MODIFICATION that the legal interest to be paid is SIX PERCENT (6%)
per annum on the amount of ₱2,226,147.26, computed from the date of the
last demand or on November 16, 1997. A TWELVE PERCENT (12%) per annum
interest in lieu of SIX PERCENT (6%) shall be imposed on such amount upon
finality of this decision until the payment thereof.
SO ORDERED.

G.R. No. 126486 February 9, 1998
BARONS MARKETING CORP., petitioner,
vs.
COURT OF APPEALS and PHELPS DODGE PHILS., INC. respondents.
KAPUNAN, J.:
The instant petition raises two issues: (1) whether or not private respondent
is guilty of abuse of right; and (2) whether or not private respondent is
entitled to interest and attorney's fees.
The facts are undisputed:
On August 31, 1973, plaintiff [Phelps Dodge, Philippines, Inc.
private respondent herein] appointed defendant [petitioner
Barons Marketing, Corporation] as one of its dealers of electrical
wires and cables effective September 1, 1973 (Exh. A). As such
dealer, defendant was given by plaintiff 60 days credit for its
purchases of plaintiff's electrical products. This credit term was to
be reckoned from the date of delivery by plaintiff of its products
to defendant (Exh. 1).
During the period covering December 1986 to August 17, 1987,
defendant purchased, on credit, from plaintiff various electrical
wires and cables in the total amount of P4,102,438.30 (Exh. B to
K). These wires and cables were in turn sold, pursuant to previous
arrangements, by defendant to MERALCO, the former being the
accredited supplier of the electrical requirements of the latter.
Under the sales invoices issued by plaintiff to defendant for the
subject purchases, it is stipulated that interest at 12% on the
amount due for attorney's fees and collection (Exh. BB). 1 On
September 7, 1987, defendant paid plaintiff the amount of
P300,000.00 out of its total purchases as above-stated (Exh. S),
thereby leaving an unpaid account on the aforesaid deliveries of
P3,802,478.20. On several occasions, plaintiff wrote defendant
demanding payment of its outstanding obligations due plaintiff
(Exhs. L, M, N, and P). In response, defendant wrote plaintiff on
October 5, 1987 requesting the latter if it could pay its
outstanding account in monthly installments of P500,000.00 plus
1% interest per month commencing on October 15, 1987 until full
payment (Exh. O and O-4). Plaintiff, however, rejected
defendant's offer and accordingly reiterated its demand for the
full payment of defendant's account (Exh. P).2
On 29 October 1987, private respondent Phelps Dodge Phils., Inc. filed a
complaint before the Pasig Regional Trial Court against petitioner Barons
Marketing Corporation for the recovery of P3,802,478.20 representing the
value of the wires and cables the former had delivered to the latter, including
interest. Phelps Dodge likewise prayed that it be awarded attorney's fees at
the rate of 25% of the amount demanded, exemplary damages amounting to
at least P100,000.00, the expenses of litigation and the costs of suit.
Petitioner, in its answer, admitted purchasing the wires and cables from
private respondent but disputed the amount claimed by the latter. Petitioner
likewise interposed a counterclaim against private respondent, alleging that
it suffered injury to its reputation due to Phelps Dodge's acts. Such acts were
purportedly calculated to humiliate petitioner and constituted an abuse of
rights.
After hearing, the trial court on 17 June 1991 rendered its decision, the
dispositive portion of which reads:
WHEREFORE, from all the foregoing considerations, the Court
finds Phelps Dodge Phils., Inc. to have preponderantly proven its
case and hereby orders Barons Marketing, Inc. to pay Phelps
Dodge the following:
1. P3,108,000.00 constituting the unpaid balance of defendant's
purchases from plaintiff and interest thereon at 12% per
annum computed from the respective expiration of the 60 day
credit term, vis-a-vis the various sales invoices and/or delivery
receipts;
2. 25% of the preceding obligation for and as attorney's fees;
3. P10,000.00 as exemplary damages;
18
4. Costs of suit.3
Both parties appealed to respondent court. Private respondent claimed that
the trial court should have awarded it the sum of P3,802,478.20, the amount
which appeared in the body of the complaint and proven during the trial
rather than P3,1081000.00 The latter amount appears in petitioner's prayer
supposedly as a result of a typographical error.
On the other hand, petitioner reiterated its claims for damages as a result of
"creditor's abuse." It also alleged that private respondent failed to prove its
cause of action against it.
On 25 June 1996, the Court of Appeals rendered a decision modifying the
decision of the trial court, thus:
WHEREFORE, from all the foregoing considerations, the Court
finds Phelps Dodge Phils., Inc. to have preponderantly proven its
case and hereby orders Barons Marketing, Inc. to pay Phelps
Dodge the following:
1. P3,802,478.20 constituting the unpaid balance of defendant's
purchases from plaintiff and interest thereon at 12% per
annum computed from the respective expiration of the 60 day
credit term, vis-a-vis the various sales invoices and/or delivery
receipts; and
2. 5% of the preceding obligation for and as attorney's fees.
No costs.4
Petitioner Barons Marketing is now before this Court alleging that
respondent court erred when it held (1) private respondent Phelps Dodge
not guilty of "creditor's abuse," and (2) petitioner liable to private
respondent for interest and attorney's fees.
I
Petitioner does not deny private respondent's rights to institute an action for
collection and to claim full payment. Indeed, petitioner's right to file an
action for collection is beyond cavil. 5 Likewise, private respondent's right to
reject petitioner's offer to pay in installments is guaranteed by Article 1248 of
the Civil Code which states:
Art. 1248. Unless there is an express stipulation to that effect, the
creditor cannot be compelled partially to receive the prestations in
which the obligation consists. Neither may the debtor be required
to make partial payments.
However, when the debt is in part liquidated and in part
unliquidated, the creditor may demand and the debtor may effect
the payment of the former without waiting for the liquidation of
the latter.
Under this provision, the prestation, i.e., the object of the obligation, must be
performed in one act, not in parts.
Tolentino concedes that the right has its limitations:
Partial Prestations. — Since the creditor cannot be compelled to
accept partial performance, unless otherwise stipulated, the
creditor who refuses to accept partial prestations does not incur
in delay or mora accipiendi, except when there is abuse of right or
if good faith requires acceptance.6
Indeed, the law, as set forth in Article 19 of the Civil Code, prescribes a
"primordial limitation on all rights" by setting certain standards that must be
observed in the exercise thereof.7 Thus:
Art. 19. Every person must, in the exercise of his rights and in the
performance of his duties, act with justice, give everyone his due,
and observe honesty and good faith.
Petitioner now invokes Article 19 and Article 21 8 of the Civil Code, claiming
that private respondent abused its rights when it rejected petitioner's offer
of settlement and subsequently filed the action for collection considering:

. . . that the relationship between the parties started in 1973
spanning more than 13 years before the complaint was filed, that
the petitioner had been a good and reliable dealer enjoying a
good credit standing during the period before it became
delinquent in 1987, that the relationship between the parties had
been a fruitful one especially for the private respondent, that the
petitioner exerted its outmost efforts to settle its obligations and
avoid a suit, that the petitioner did not evade in the payment of
its obligation to the private respondent, and that the petitioner
was just asking a small concession that it be allowed to liquidate
its obligation to eight (8) monthly installments of P500,000.00
plus 1% interest per month on the balance which proposal was
supported by post-dated checks.9
Expounding on its theory, petitioner states:
In the ordinary course of events, a suit for collection of a sum of
money filed in court is done for the primary purpose of collecting
a debt or obligation. If there is an offer by the debtor to pay its
debt or obligation supported by post-dated checks and with
provision for interests, the normal response of a creditor would
be to accept the offer of compromise and not file the suit for
collection. It is of common knowledge that proceedings in our
courts would normally take years before an action is finally
settled. It is always wiser and more prudent to accept an offer of
payment in installment rather than file an action in court to
compel the debtor to settle his obligation in full in a single
payment.
x x x           x x x          x x x
. . . Why then did private respondent elect to file a suit for
collection rather than accept petitioner's offer of settlement,
supported by post-dated checks, by paying monthly installments
of P500,000.00 plus 1% per month commencing on October 15,
1987 until full payment? The answer is obvious. The action of
private respondent in filling a suit for collection was an abuse of
right and exercised for the sole purpose of prejudicing and
injuring the petitioner.10
Petitioner prays that the Court order private respondent to pay petitioner
moral and exemplary damages, attorney's fees, as well as the costs of suit. It
likewise asks that it be allowed to liquidate its obligation to private
respondent, without interests, in eight equal monthly installments.
Petitioner's theory is untenable.
Both parties agree that to constitute an abuse of rights under Article 19 the
defendant must act with bad faith or intent to prejudice the plaintiff. They
cite the following comments of Tolentino as their authority:
Test of Abuse of Right. — Modern jurisprudence does not permit
acts which, although not unlawful, are anti-social. There is
undoubtedly an abuse of right when it is exercised for the only
purpose of prejudicing or injuring another. When the objective of
the actor is illegitimate, the illicit act cannot be concealed under
the guise of exercising a right. The principle does not permit acts
which, without utility or legitimate purpose cause damage to
another, because they violate the concept of social solidarity
which considers law as rational and just. Hence, every abnormal
exercise of a right, contrary to its socio-economic purpose, is an
abuse that will give rise to liability. The exercise of a right must be
in accordance with the purpose for which it was established, and
must not be excessive or unduly harsh; there must be no intention
to injure another. Ultimately, however, and in practice, courts, in
the sound exercise of their discretion, will have to determine all
the facts and circumstances when the exercise of a right is unjust,
or when there has been an abuse of right.11
The question, therefore, is whether private respondent intended to prejudice
or injure petitioner when it rejected petitioner's offer and filed the action for
collection.
We hold in the negative. It is an elementary rule in this jurisdiction that good
faith is presumed and that the burden of proving bad faith rests upon the
party alleging the same.12 In the case at bar, petitioner has failed to prove
bad faith on the part of private respondent. Petitioner's allegation that
private respondent was motivated by a desire to terminate its agency
relationship with petitioner so that private respondent itself may deal
directly with Meralco is simply not supported by the evidence. At most, such
supposition is merely speculative.
19
Moreover, we find that private respondent was driven by very legitimate
reasons for rejecting petitioner's offer and instituting the action for collection
before the trial court. As pointed out by private respondent, the corporation
had its own "cash position to protect in order for it to pay its own
obligations." This is not such "a lame and poor rationalization" as petitioner
purports it to be. For if private respondent were to be required to accept
petitioner's offer, there would be no reason for the latter to reject similar
offers from its other debtors. Clearly, this would be inimical to the interests
of any enterprise, especially a profit-oriented one like private respondent. It
is plain to see that what we have here is a mere exercise of rights, not
an abuse thereof Under these circumstances, we do not deem private
respondent to have acted in a manner contrary to morals, good customs or
public policy as to violate the provisions of Article 21 of the Civil Code.
Consequently, petitioner's prayer for moral and exemplary damages must
thus be rejected. Petitioner's claim for moral damages is anchored on Article
2219 (10) of the Civil Code which states:
Art. 2219. Moral damages may be recovered in the following and
analogous cases:
x x x           x x x          x x x
(10) Acts and actions referred to in articles 21, 26, 27, 28, 29, 30,
32, 34, and 35.
x x x           x x x          x x x
Having ruled that private respondent's acts did not transgress the provisions
of Article 21, petitioner cannot be entitled to moral damages or, for that
matter, exemplary damages. While the amount of exemplary damages need
not be proved, petitioner must show that he is entitled to moral, temperate
or compensatory damages before the court may consider the question of
whether or not exemplary damages should be awarded.13 As we have
observed above; petitioner has failed to discharge this burden.
It may not be amiss to state that petitioner's contract with private
respondent has the force of law between them.14 Petitioner is thus bound to
fulfill what has been expressly stipulated therein.15 In the absence of any
abuse of right, private respondent cannot be allowed to perform its
obligation under such contract in parts. Otherwise, private respondent's right
under Article 1248 will be negated, the sanctity of its contract with petitioner
defiled. The principle of autonomy of contracts16 must be respected.
II
Under said contract, petitioner is liable to private respondent for the unpaid
balance of its purchases from private respondent plus 12% interest. Private
respondent's sales invoices expressly provide that:
. . . Interest at 12% per annum will be charged on all overdue
account plus 25% on said amount for attorney's fees and
collection. . . .17
It may also be noted that the above stipulation, insofar as it provides for the
payment of "25% on said amount for attorney's fees and collection (sic),"
constitutes what is known as a penal clause.18 Petitioner is thus obliged to
pay such penalty in addition to the 12% annual interest, there being an
express stipulation to that effect.
Petitioner nevertheless urges this Court to reduce the attorney's fees for
being "grossly excessive," "considering the nature of the case which is a mere
action for collection of a sum of money." It may be pointed out however that
the above penalty is supposed to answer not only for attorney's fees but for
collection fees as well. Moreover:
. . . the attorneys' fees here provided is not, strictly speaking, the
attorneys' fees recoverable as between attorney and client
spoken of and regulated by the Rules of Court. Rather, the
attorneys' fees here are in the nature of liquidated damages and
the stipulation therefor is aptly called a penal clause. It has been
said that so long as such stipulation does not contravene law,
morals, or public order, it is strictly binding upon defendant. The
attorneys' fees so provided are awarded in favor of the litigant,
not his counsel. It is the litigant, not counsel, who is the judgment
creditor entitled to enforce the judgment by execution. 19
Nonetheless, courts are empowered to reduce such penalty if the same is
"iniquitous or unconscionable." Article 1229 of the Civil Code states thus:

Art. 1229. The judge shall equitably reduce the penalty when the
principal obligation has been partly or been irregularly complied
with by the debtor. Even if there has no performance, the penalty
may also be reduced by the courts if it is iniquitous or
unconscionable. (Emphasis supplied.)
The sentiments of the law are echoed in Article 2227 of the same Code:
Art. 2227. Liquidated damages, whether intended as an indemnity
or a penalty, shall be equitably reduced if they are iniquitous or
unconscionable.
It is true that we have upheld the reasonableness of penalties in the form of
attorney's fees consisting of twenty-five percent (25%) of the principal debt
plus interest.20 In the case at bar, however, the interest alone runs to some
four and a half million pesos (P4.5M), even exceeding the principal debt
amounting to almost four million pesos (P4.0M). Twenty five percent (25%)
of the principal and interest amounts to roughly two million pesos (P2M). In
real terms, therefore, the attorney's fees and collection fees are manifestly
exorbitant. Accordingly, we reduce the same to ten percent (10%) of
the principal.
Private respondent, however, argues that petitioner failed to question the
award of attorney's fees on appeal before respondent court and raised the
issue only in its motion for reconsideration. Consequently, petitioner should
be deemed to have waived its right to question such award.
Private respondent's attempts to dissuade us from reducing the penalty are
futile. The Court is clothed with ample authority to review matters, even if
they are not assigned as errors in their appeal, if it finds that their
consideration is necessary in arriving at a just decision of the case.21
WHEREFORE, the decision of the Court of Appeals is hereby MODIFIED in that
the attorney's and collection fees are reduced to ten percent (10%) of the
principal but is AFFIRMED in all other respects.
SO ORDERED.
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:
20
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
AN ALIAS WRIT OF EXECUTION CANNOT BE ISSUED WITHOUT
PRIOR RETURN OF THE ORIGINAL WRIT BY THE IMPLEMENTING
OFFICER.
II
PAYMENT OF JUDGMENT TO THE IMPLEMENTING OFFICER AS
DIRECTED IN THE WRIT OF EXECUTION CONSTITUTES
SATISFACTION OF JUDGMENT.
III
INTEREST IS NOT PAYABLE WHEN THE DECISION IS SILENT AS TO
THE PAYMENT THEREOF.
IV
SECTION 5, RULE 39, PARTICULARLY REFERS TO LEVY OF
PROPERTY OF JUDGMENT DEBTOR AND DISPOSAL OR SALE
THEREOF TO SATISFY JUDGMENT.
Can an alias writ of execution be issued without a prior return of the original
writ by the implementing officer?
We rule in the affirmative and we quote the respondent court's decision with
approval:
The issuance of the questioned alias writ of execution under the
circumstances here obtaining is justified because even with the
absence of a Sheriffs return on the original writ, the unalterable
fact remains that such a return is incapable of being obtained (sic)
because the officer who is to make the said return has absconded
and cannot be brought to the Court despite the earlier order of
the court for him to appear for this purpose. (Order of Feb. 21,
1978, Annex C, Petition). Obviously, taking cognizance of this
circumstance, the order of May 11, 1978 directing the issuance of
an alias writ was therefore issued. (Annex D. Petition). The need
for such a return as a condition precedent for the issuance of an
alias writ was justifiably dispensed with by the court below and its
action in this regard meets with our concurrence. A contrary view
will produce an abhorent situation whereby the mischief of an
erring officer of the court could be utilized to impede indefinitely
the undisputed and awarded rights which a prevailing party
rightfully deserves to obtain and with dispatch. The final judgment
in this case should not indeed be permitted to become illusory or
21
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.
22
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.1âwphi1 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.
x x x           x x x          x x x
It is clear and manifest that after levy or garnishment, for a
judgment to be executed there is the requisite of payment by the
officer to the judgment creditor, or his attorney, so much of the
proceeds as will satisfy the judgment and none such payment had
been concededly made yet by the absconding Sheriff to the
private respondent Amelia Tan. The ultimate and essential step to
complete the execution of the judgment not having been
performed by the City Sheriff, the judgment debt legally and
factually remains unsatisfied.
Strictly speaking execution cannot be equated with satisfaction of a
judgment. Under unusual circumstances as those obtaining in this petition,
the distinction comes out clearly.
Execution is the process which carries into effect a decree or judgment
(Painter v. Berglund, 31 Cal. App. 2d. 63, 87 P 2d 360, 363; Miller v. London,
294 Mass 300, 1 NE 2d 198, 200; Black's Law Dictionary), whereas the
satisfaction of a judgment is the payment of the amount of the writ, or a
lawful tender thereof, or the conversion by sale of the debtor's property into
an amount equal to that due, and, it may be done otherwise than upon an
execution (Section 47, Rule 39). Levy and delivery by an execution officer are
not prerequisites to the satisfaction of a judgment when the same has
already been realized in fact (Section 47, Rule 39). Execution is for the sheriff
to accomplish while satisfaction of the judgment is for the creditor to
achieve. Section 15, Rule 39 merely provides the sheriff with his duties as
executing officer including delivery of the proceeds of his levy on the debtor's
property to satisfy the judgment debt. It is but to stress that the
implementing officer's duty should not stop at his receipt of payments but
must continue until payment is delivered to the obligor or creditor.
Finally, we find no error in the respondent court's pronouncement on the
inclusion of interests to be recovered under the alias writ of execution. This
logically follows from our ruling that PAL is liable for both the lost checks and
interest. The respondent court's decision in CA-G.R. No. 51079-R does not
totally supersede the trial court's judgment in Civil Case No. 71307. It merely
modified the same as to the principal amount awarded as actual damages.
WHEREFORE, IN VIEW OF THE FOREGOING, the petition is hereby DISMISSED.
The judgment of the respondent Court of Appeals is AFFIRMED and the trial
court's issuance of the alias writ of execution against the petitioner is upheld
without prejudice to any action it should take against the errant sheriff Emilio
Z. Reyes. The Court Administrator is ordered to follow up the actions taken
against Emilio Z. Reyes.
SO ORDERED.
Fernan, C.J., Cruz, Paras, Bidin, Griño-Aquino, Medialdea and Regalado, JJ.,
concur.
Separate Opinions
NARVASA, J., dissenting:
The execution of final judgments and orders is a function of the sheriff, an
officer of the court whose authority is by and large statutorily determined to
meet the particular exigencies arising from or connected with the
performance of the multifarious duties of the office. It is the
acknowledgment of the many dimensions of this authority, defined by
statute and chiselled by practice, which compels me to disagree with the
decision reached by the majority.
23
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:
24
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 not thereby become negligent; it did not make the loss anymore possible
or probable than if it had instead delivered plain cash to the sheriffs.
It seems to me that the majority opinion's real premise is the unspoken one
that the judgment debtor should bear the risk of the fragility of the sheriff s
virtue until the money or property parted with by the judgment debtor
actually reaches the hands of the judgment creditor. This brings me back to
my earlier point that risk is most appropriately borne not by the judgment
debtor, nor indeed by the judgment creditor, but by the State itself. The
Court requires all sheriffs to post good and adequate fidelity bonds before
entering upon the performance of their duties and, presumably, to maintain
such bonds in force and effect throughout their stay in office.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.
25
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.
[G.R. No. 78556. April 25, 1991.]
ALFARO FORTUNADO, EDITH FORTUNADO, NESTOR FORTUNADO and
RAMON A. GONZALES, Petitioners, v. COURT OF APPEALS, BASILISA
CAMPANO, as City Sheriff of Iligan City, REGISTER OF DEEDS, Iligan City,
ANGEL L. BAUTISTA and NATIONAL STEEL CORPORATION, Respondents.
Ramon A. Gonzales and Manuel B. Imbong, for Petitioners.
Emilio G. Abrogena and R.C. Domingo Jr. & Associates for Angel L. Bautista.
Sycip, Salazar, Hernandez & Gatmaitan for National Steel Corp.
SYLLABUS
1. REMEDIAL LAW; CIVIL PROCEDURE; EXECUTION OF JUDGMENTS; VALIDITY
OF TENDER OF PAYMENT THROUGH CROSSED CHECK FOR EXERCISE OF
RIGHT OF REDEMPTION. — The central issue in this case is whether or not
redemption has been validly effected by the private respondents. Petitioners
contended that the check issued by NSC, not being legal tender, could not be
considered payment of the redemption price. Private respondents however
contended that Article 1249 of the New Civil code is inapplicable as it "deals
with a mode of extinction of debts" while the "right to redeem is not an
obligation, nor is it intended to discharge a pre-existing debt." Tolentino v.
Court of Appeals, besides citing Javellana, stresses the liberality of the courts
in redemption cases. On the issue of the applicability of Article 1249 of the
Civil Code and the validity of the tender of payment through check, this Court
held: Redemption is not rendered invalid by the fact that the said officer
accepted a check for the amount necessary to make the redemption instead
of requiring payment in money. It goes without saying that if he had seen fit
to do so, the officer could have required payment to be made in lawful
money, and he undoubtedly, in accepting a check, placed himself in a
position where he could be liable to the purchaser at the public auction if any
damage had been suffered by the latter as a result of the medium in which

payment was made. But this cannot affect the validity of the payment.
2. ID.; ID.; ID.; REDEMPTION WITH RESERVATION OF RIGHT AND REMEDIES,
NOT WRONG. — We find nothing wrong with Bautista’s letter of March 21,
1985, where he made his redemption of the lot covered by TCT No. T-7625
subject to the reservation that "the same shall not be taken to mean my
acknowledgment of the validity of the aforesaid writ of execution and
sale . . . nor . . . as waiver on my part of any of the legal rights and remedies
available to me under the circumstances." Had he not done so, estoppel
might have operated against him. As we held in Cometa v. IAC, "redemption
is an implied admission of the regularity of the sale and would estop the
petitioner from later impugning its validity on that ground" In questioning
the writ of execution and sale and at the same time redeeming his property,
Bautista was exercising alternative reliefs.
3. ID.; ID.; ID.; TENDER OF CHECK SUFFICIENT TO COMPEL REDEMPTION BUT
IS NOT IN ITSELF A PAYMENT. — We are not, by this decision, sanctioning the
use of a check for the payment of obligations over the objection of the
creditor. What we are saying is that a check may be used for the exercise of
the right of redemption, the same being a right and not an obligation. The
tender of a check is sufficient to compel redemption but is not in itself a
payment that relieves the redemptioner from his liability to pay the
redemption price. In other words, while we hold that the private
respondents properly exercised their right of redemption, they remain liable,
of course, for the payment of the redemption price.
DECISION
CRUZ, J.:
The petitioners assail the decision of the Court of Appeals 1 denying
mandamus to compel the sheriff to execute a final deed of sale in their favor.
On April 21, 1981, the Regional Trial Court of Quezon City 2 rendered
judgment in Civil Case No. Q-22367, entitled "Alfaro Fortunado v. Angel
Bautista," ordering the defendant to pay damages to the plaintiff. Pursuant
to the said judgment, respondent Basilisa Campano, City Sheriff of Iligan City,
levied upon two parcels of land registered in the name of Bautista located at
Iligan City and covered by TCT Nos. T-7625 and T-14133. The latter lot had
already been purchased by respondent National Steel Corporation as of
August 17, 1983, but had not yet been registered in its name.
After due notice, these lots were sold at public auction to the petitioners as
the only bidder on April 23, 1984. They were issued a certificate of sale which
was registered on April 25, 1984.
On January 10, 1985, NSC gave notice to the sheriff of its intention to redeem
the lot covered by TCT No. T-14133. The sheriff suggested that as the two
lots had been sold together for the lump sum of P267,013.00, both of them
should be redeemed by NSC.
On February 11, 1985, NSC filed with the trial court an urgent motion to
redeem both lots. This was opposed by the petitioners on the ground that
the movant did not have the personality to intervene.
As the motion remained unresolved and the period of redemption would
expire on April 18, 1985, NSC issued to the sheriff on March 20, 1985, PNB
Check No. 313551 in the amount of P296,384.43 as the redemption price for
the lot covered by TCT No. T-14133. The sheriff acknowledged receipt of the
check on the same date.
On March 21, 1985, Bautista sent the sheriff a letter bearing NSC’s
conformity in which he availed himself of NSC’s check, which was sufficient
to cover the full redemption price for both lots, to redeem the other lot
covered by TCT No. T-7625. His letter contained the following
reservation:chanrob1es virtual 1aw library
This redemption is made solely for the purpose of effecting the execution
and delivery to me of the necessary certificate of redemption and the same
shall not be taken to mean my acknowledgment of the validity of the
aforesaid writ of execution and sale, both of which I shall continue to
contest, nor shall this be taken to mean as a waiver on my part of any of the
legal rights and remedies available to me under the
circumstances.chanrobles lawlibrary : rednad
The sheriff acknowledged receipt of the check as redemption money for the
two parcels of land on March 21, 1985, and on March 22, 1985, issued a
certificate of redemption in favor of NSC and Bautista.
On March 25, 1985, Bautista wrote the sheriff that he would no longer effect
the redemption because there was nothing to redeem, the auction sale being
26
null and void.
In an Urgent Motion dated March 27, 1985, Bautista prayed that the sum of
P296,384.43 covered by the PNB check be delivered to and kept by the Clerk
of Court of the Regional Trial Court of Quezon City until such time as all
incidents relative to the validity of the auction sale conducted by the sheriff
were finally resolved.
On March 29, 1985, the sheriff wired the petitioners’ counsel, notifying him
of the deposit of the PNB check. The said counsel told the sheriff that he was
rejecting the check because it was not legal tender and was not intended for
payment but merely for deposit, as evidenced by Bautista’s Urgent Motion of
March 27, 1985.
On April 25, 1985, the petitioner requested the sheriff to issue a final deed of
sale over the two lots and deliver the same to them on the ground that no
valid redemption had been effected within the 12-month period from the
registration of the sale. When the request was not granted, the petitioners
filed with the respondent court a petition for mandamus.
According to the petitioners, NSC and Bautista failed to comply with the
provisions of the Rules of Court in exercising their right of redemption. They
invoked Article 1249 of the Civil Code, which provides that "the payment of
debts in money shall be made in the currency stipulated, and if it is not
possible to deliver such currency, then in the currency which is legal tender
in the Philippines." They argued that this provision was applicable to
redemption under Rule 39, Section 30, of the Rules of Court.
They also contended that the check issued by NSC, not being legal tender,
could not be considered payment of the redemption price. Moreover, the
tender of the redemption price was not valid as the same was conditional
under Bautista’s letter to the sheriff dated March 21, 1985. And even
granting the validity of the said tender, it was nevertheless withdrawn when
on March 27, 1985, Bautista filed his Urgent Motion to deposit the
redemption money with the clerk of court.chanrobles virtual lawlibrary
The petitioners added that since there was no delivery to the creditor of the
redemption price, there was no payment within the meaning of Article 1233
of the Civil Code. This provides that "a debt shall not be understood to have
been paid, unless the thing or service in which the obligation consists has
been completely delivered or rendered, as the case may be."cralaw
virtua1aw library
On November 10, 1986, the respondent court denied mandamus but granted
injunction to restrain the registration of the certificate of redemption in favor
of NSC and Bautista.
The respondent court rejected the petitioner’s contention that Article 1249
was applicable in cases of redemption and reiterated the settled
jurisprudence that "the right of redemption is not an obligation nor is it
intended to discharge a pre-existing debt, 3 the right of redemption being in
fact a privilege."cralaw virtua1aw library
Citing Javellana v. Mirasol, 4 the respondent court said that "the redemption
was not rendered invalid by the fact that the officer accepted a check for the
amount necessary to make the redemption instead of requiring payment in
money." On the failure to deliver the redemption price to the petitioners
directly, it said that the payment of the redemption money to the sheriff was
legally sanctioned under Rule 39, Section 31, of the Rules of Court which
provides that such payment "may be made to the purchaser . . . or . . . to the
officer who made the sale."cralaw virtua1aw library
The respondent court considered NSC "s redemption as absolute and
unconditional in view of its refusal to join Bautista in contesting the validity
of the sale and in withdrawing the redemption. But Bautista’s reservation in
his letter of March 21, 1980, and his repudiation of the redemption made by
NSC, made his own redemption in officious.
The respondent court observed, however, that the validity of redemption
was dependent on the validity of the certificate of sale, which had to be
resolved by the trial court.
On November 22, 1986, the petitioners moved for partial reconsideration.
While their motion was pending, NSC filed a Manifestation dated March 18,
1987, informing the respondent court that the certificate of redemption had
already been registered and TCT No. T-27154 had been issued in its favor on
September 12, 1985.
On May 8, 1987, the respondent court denied the petitioners’ motion for
reconsideration. Hence, this appeal by certiorari on the grounds that the
Court of Appeals erred in holding inter alia that Article 1249 of the New Civil
Code does not apply to the payment of the redemption price of property sold
at public auction and that the redemption of NSC is unconditional and
without reservation.

The central issue in this case is whether or not redemption had been validly
effected by the private respondents.chanrobles law library : red
It is contended by the private respondents that Article 1249 of the New Civil
Code is inapplicable as it "deals with a mode of extinction of debts" 5 while
the "right to redeem is not an obligation, nor is it intended to discharge a
pre-existing debt." 6 the officer accepts such payment. 13 If in good faith the redemptioner pays,
They rely on Javellana, where we held that "a redemption of property sold
under execution is not rendered invalid by reason of the fact that the
payment to the sheriff for the purpose of redemption is effected by means of
a check for the amount due."cralaw virtua1aw library
The petitioners, on the other hand, invoke Belisario v. Natividad, 7 where it
was held that "even if the check had been good, the defendant was not
legally bound to accept it because such a check does not satisfy the
requirements of a legal tender." They also cite Villanueva v. Santos, 8
Legarda v. Miailhe, 9 New Pacific Timber and Supply Co., Inc. v. Seneris, 10
and Philippine Air Lines v. Court of Appeals, 11 all of which, they claim, have
overruled Javellana.
The Court does not agree with these conclusions. It would appear from a
study of the jurisprudence invoked by the parties that the case applicable to
the present controversy is Javellana v. Mirasol.
The cases cited by the petitioners do not involve redemption by check. The
check tendered in Belisario, was in the exercise of an option to repurchase; in
Villanueva in connection with a pacto de retire; in Legarda and New Pacific as
payment of a mortgage indebtedness; and in the PAL case in satisfaction of a
judgment.
Toleration v. Court of Appeals, 12 besides citing Javellana, stresses the
liberality of the courts in redemption cases. On the issue of the applicability
of Article 1249 of the Civil Code and the validity of the tender of payment
through a crossed check, this Court held:chanrob1es virtual 1aw library
. . . the aforequoted Article should not be applied in the instant case . . .
To start with, the Tolentinos are not indebted to BPI their mortgage
indebtedness having been extinguished with the foreclosure and sale of the
mortgaged properties. After said foreclosure and sale, what remains is the
right vested by law in favor of the Tolentinos to redeem the properties within
the prescribed period. This right of redemption is an absolute privilege, the
exercise of which is entirely dependent upon the will and discretion of the
redemptioners. There is, thus, no legal obligation to exercise the right of
redemption. Said right, can in no sense, be considered an obligation, for the
Tolentinos are under no compulsion to exercise the same. Should they
choose not to exercise it, nobody can compel them to do so nor will such
choice give rise to a cause of action in favor of the purchaser at the auction
sale. In fact, the relationship between said purchaser and the redemptioners
is not even that of creditor and debtor.chanrobles.com : virtual law library
On the other hand, if the redemptioners choose to exercise their right of
redemption, it is the policy of the law to aid rather than to defeat the right of
redemption. It stands to reason therefore, that redemptions should be
looked upon with favor and where no injury is to follow, a liberal
construction will be given to our redemption laws as well as to the exercise
of the right of redemption. In the instant case, the ends of justice would be
better served by affording the Tolentinos the opportunity to redeem the
properties in question other than the homestead land, in line with the policy
aforesaid. . . .
x       x       x
. . . And the redemption is not rendered invalid by the fact that the said
officer accepted a check for the amount necessary to make the redemption
instead of requiring payment in money. It goes without saying that if he had
seen fit to do so, the officer could have required payment to be made in
lawful money, and he undoubtedly, in accepting a check, placed himself in a
position where he could be liable to the purchaser at the public auction if any
damage had been suffered by the latter as a result of the medium in which
payment was made. But this cannot affect the validity of the payment. The
check as a medium of payment in commercial transactions is too firmly
established by usage to permit of any doubt upon this point at the present
day. No importance may thus be attached to the circumstance that a stop-
payment order was issued against check the day following the deposit, for
the same will not militate against the right of the Tolentinos to redeem, in
the same manner that a withdrawal of the redemption money being,
deposited cannot be deemed to have forfeited the right to redeem, such
redemption being optional and not compulsory. Withal, it is not clearly
shown that said stop-payment order was made in bad faith. . . .
Although the private respondents in the case at bar did not file a redemption
case against petitioners, it should not be noted that private respondents NSC
filed an Urgent Motion for Redemption dated February 11, 1985, and
27
Bautista filed an Urgent Motion (To Deposit Redemption Money with Quezon
City Clerk of Court) dated March 27, 1985. The motions were well within the
redemption period.
In the United States, it has also been held and recognized that a payment by
check or draft or bank bills or currency which is not legal tender is effective if
and the officer receives before the expiration of the time of redemption, an
ordinary banker’s check, the payment is regarded as sufficient. 14
We find nothing wrong with Bautista’s letter of March 21, 1985, where he
made his redemption of the lot covered by TCT No. T-7625 subject to the
reservation that "the same shall not be taken to mean my acknowledgment
of the validity of the aforesaid writ of execution and sale . . . nor . . . as waiver
on my part of any of the legal rights and remedies available to me under the
circumstances." Had he not done so, estoppel might have operated against
him. As we held in Cometa v. IAC, 15 "redemption is an implied admission of
the regularity of the sale and would stop the petitioner from later impugning
its validity on that ground." In questioning the writ of execution and sale and
at the same time redeeming his property, Bautista was exercising alternative
reliefs.
In Javellana, it was contended that the position of Luis Mirasol as a litigant in
the prior appeal was inconsistent with his position as litigant in the
redemption case and that he was estopped from now claiming as
redemptioner the property which he had earlier claimed as owner. The Court
held:chanrob1es virtual 1aw library
We are unable to see any force in the suggestions; as the positions occupied
by this litigant are based upon alternative rather than upon opposed
pretension. No one can question the right of a litigant to claim property as
owner and to seek in the same proceeding alternative relief founded upon
some secondary right. The right of redemption, for instance, is always
considered compatible with ownership, and one who fails to obtain relief in
the sense of absolute owner may successfully assert the other right. That
which a litigant may do in any one case can of course be done in two
different proceedings.
We reiterated that same view in Ybañez v. CA, 16 thus:chanrob1es virtual
1aw library
Nor are the causes of action in the two (2) cases inconsistent with one
another. As aptly pointed out by the respondent Appellate Court, there are
issues in the Reconveyance Case that are set apart from the question of the
validity of the auction sale, which is the subject of inquiry in the Annulment
Suit. The latter case alleged irregularities in the conduct of the public auction
sale. . . .
On the other hand, the issues raised in the Reconveyance Case call for a
separate determination of such questions as whether respondent Go had, in
fact delivered the redemption money to one of the petitioners; whether or
not such delivery, if there had been one, had been made on time, and
whether or not another money judgment against respondent Go had already
been satisfied. In effect, the Reconveyance Case presented an alternative
cause of action.chanrobles.com.ph : virtual law library
Although Bautista repudiated his redemption in his letter of March 25, 1985,
to the sheriff on the ground that the auction sale was illegal, he backtracked
in his Urgent Motion dated March 27, 1985, wherein he prayed that —
". . . Sheriff Basilisa Campano of Iligan City be directed and ordered to
immediately transfer and deliver, upon his encashment of PNB Check No. A-
313551, the aforesaid sum of P296,384.43 deposited to her by the National
Steel Corporation, through the authority of defendant, to the Clerk of Court,
Regional Trial Court of Quezon City, to remain thereat until the validity of the
questioned orders and or decision in the above entitled case are resolved
with finality or until further orders from the Honorable Court.
It is further prayed that the aforesaid amount be considered as sufficient
redemption price if it shall finally be adjudged that plaintiffs are entitled
thereto; otherwise, the said amount shall be returned and delivered back to
herein defendant.
x       x       x
Finally, the petitioners pray that we rule on the validity of the certificate of
sale assailed by Bautista on the ground that it covers more than one lot and
does not indicate the price paid for each parcel. They contend that Bautista
has not shown that the parcel of land would have been sold for a better price
had they been offered separately and that he had not asked that they be sold
by parcels. They also maintain that since we have the main jurisdiction to
determine the validity of the redemption, we likewise have ancillary
jurisdiction to rule on the validity of the sale.
The facts surrounding the sale are not before us. In response to a query from

this Court regarding the status of CC No. Q22367, the clerk of the trial court
replied that the records of that court were totally burned during the fire
which razed the Quezon City Hall on June 11, 1988. Apart from the
circumstance that we are not a trier of facts, the facts we are asked to try are
not at hand.
We are not, by this decision, sanctioning the use of a check for the payment
of obligations over the objection of the creditor. What we are saying is that a
check may be used for the exercise of the right of redemption, the same
being a right and not an obligation. The tender of a check is sufficient to
compel redemption but is not in itself a payment that relieves the
redemptioner from his liability to pay the redemption price. In other words,
while we hold that the private respondents properly exercised their right or
redemption, they remain liable of course, for the payment of the redemption
price.
WHEREFORE, the appealed decision is AFFIRMED, with the modification that
the redemption made by Angel L. Bautista was also unconditional like that of
the National Steel Corporation. Accordingly, the petition is DENIED, with
costs against the petitioners.
SO ORDERED
G.R. Nos. L-50405-06 August 5, 1981
VICENTA P. TOLENTINO and JOSE TOLENTINO, petitioners,
vs.
COURT OF APPEALS, BANK OF THE PHILIPPINE ISLANDS, CONSUELO B. DE
LA CRUZ, et al., respondents.
DE CASTRO, J.:
A petition for review by certiorari of the consolidated decision 1 of the
respondent Court of Appeals in CA-G.R. Nos. 53907-R 2 and 54004-
R 3 promulgated on February 22, 1978, as well as the Resolution 4 of said
Court of Appeals, promulgated on March 30, 1979, denying the Motion for
Reconsideration of the aforesaid consolidated decision.
Ceferino de la Cruz died in Davao City on April 19, 1960 leaving as his only
heirs his widow, Consuelo de la Cruz, and their children Hilario, Tarcelo, and
Godofredo, all surnamed de la Cruz (hereinafter referred to as the De la
Cruzes). At the time of his demise, Ceferino left a parcel of land (homestead
land) containing 131,705 square meters covered by Original Certificate of
Title No. P-16 in his name, issued by virtue of Homestead Patent No. V-1728.
In a deed of sale executed by the De la Cruzes on April 30, 1962, the
homestead land was sold to the spouses Jose Tolentino and Vicenta
Tolentino (hereinafter referred to as the Tolentinos). The Tolentinos took
immediate possession of the homestead land and caused the cancellation of
O.C.T. No. P-16 and the issuance of T.C.T. No. T-11135 in their names.
In 1963, the Tolentinos constituted a first mortgage over the homestead
land, together with two other parcels of land covered by T.C.T. Nos. 11085
and 11626 in their names, in favor of the Bank of the Philippine Islands, (BPI)
Davao Branch, for a loan of P40,000. Another mortgage was constituted over
the said properties in 1964 in favor of Philippine Banking Corporation. The
Tolentinos failed to pay their mortgage indebtedness to the BPI upon
maturity in the judicial foreclosure sale that followed, conducted by the City
Sheriff of Davao on July 15, 1967, BPI was the sole and highest bidder. The
Sheriff's Certificate of Sale in favor of BPI was registered only on April 2, 1969
in the Registry of Deeds of Davao.
Meanwhile, on February 4, 1967, the De la Cruzes filed an action 5 with the
Court of First Instance of Davao against the Tolentinos for the repurchase of
the homestead land under Section 119 of the Public Land Act (CA 141), with a
prayer for damages and accounting of fruits on the ground that they had
tried to repurchase said land extrajudicially for several tunes already but that
the Tolentinos would not heed their request, thus constraining the De la
Cruzes to file a court action for the repurchase thereof. BPI and Philippine
Banking Corporation were included in the action as formal party defendants,
being the first and second mortgagees, respectively, of the homestead land.
On June 1, 1967, the Tolentinos filed a motion for extension of ten (10) days
"from and after June lst" to file their answer. This motion was granted by the
lower court.
On June 14, 1967, the De la Cruzes filed a petition to declare the Tolentinos
in default for failure to file an answer. On that same day, the Tolentinos filed
a Motion to Dismiss the repurchase case on the ground that the complaint
states no cause of action, but said motion was denied by the lower court on
the ground that the same was filed out of time. Subsequently, the Tolentinos
28
were declared in default and the De la Cruzes were allowed to present their
evidence ex parte.
On November 24, 1967, the Tolentinos filed their answer interposing the
defense that the complaint states no cause of action because from the face
of T.C.T. No. T-11135 alone, only the original patentee, Ceferino, is given the
right to repurchase the homestead land and not the De la Cruzes and
because the complaint does not allege that there was a bona fide offer to
repurchase or a valid tender of payment, as well as an allegation that the De
la Cruzes intended to pay not only the purchase price but all the other
expenses of the sale which includes the necessary and useful expenses made
on the thing sold, as required under Article 1616 of the new Civil Code.
Upon a manifestation filed by the De la Cruzes, the lower court issued an
Order dated December 8, 1967 declaring the Tolentinos as "having no
standing" in the proceedings therein, to which the latter filed a motion for its
reconsideration. This motion, as well as their second Motion for
Reconsideration, was denied by the lower court.
On March 27, 1969, the lower court rendered a decision allowing the De la
Cruzes to repurchase the homestead land. Upon payment by the De la Cruzes
of the amount of P16,000 representing the repurchase price to the BPI, the
latter executed a deed of conveyance over the homestead land on August 25,
1969. On motion, the lower court issued a writ of possession in favor of the
De la Cruzes on September 4, 1969, which was served by the City Sheriff
upon the Tolentinos on September 8, 1969. Accordingly, the possession of
the homestead land was delivered to the De la Cruzes on September
13,1969.
On September 19, 1969, the Tolentinos filed a petition for relief from the
Decision dated March 27, 1969 on the ground of excusable mistake in the
counting of the reglementary period for the filing of an answer, with a prayer
that the Order declaring them in default be lifted and that they be allowed to
present their defense.
On October 1, 1969, the Tolentinos filed a Motion to Quash the writ of
possession alleging as principal grounds therefor the absence of service on
their counsel of a copy of the writ of possession, as well as the decision of
the lower court declaring the De la Cruzes entitled to repurchase the
homestead land. The De la Cruzes filed an opposition to this Motion and
prayed for the investigation of an alleged tampering of records of the case
particularly the page containing the proofs of the service of a copy of the writ
of possession as well as of the decision of the lower court to the Tolentinos.
On October 4, 1969, the lower court denied the Motion to Quash. A motion
for reconsideration was likewise denied by the lower court on December
6,1969.
On October 6, 1970, the Tolentinos filed before the respondent Court of
Appeals a petition for certiorari (CA-G.R. No. SP-46321) against the De la
Cruzes, wherein the Tolentinos raise the propriety of the issuance of the Writ
of Possession alleging that it was issued improvidently because the decision
of the lower court declaring them in default was not served upon them and,
therefore, the judgment has not become final and executory. This petition
was denied by the respondent court in a decision rendered on November 15,
1971 on the ground that the Tolentino were actually and duly served with a
copy of the questioned decision.
On March 5, 1973, the trial court issued an Order denying for lack of merit
the petition for relief from judgment filed therein by the Tolentinos. It
likewise denied a motion for reconsideration filed subsequently by the
Tolentinos in its Order of July 5, 1973. Consequently, the Tolentinos appealed
to the respondent Court of Appeals the above 2 Orders of the lower court,
docketed therein as CA G.R. No. 54004-R, claiming that the lower court erred
and abused its discretion in not lifting its Order of default and in not ordering
resumption of trial for the reception of their evidence; and, in finally ordering
execution of the default judgment.
In the meantime, on March 2, 1970, petitioner Vicente Tolentino went to see
Mr. Ramon Lopez, Branch Manager of BPI Davao Branch, carrying a letter of
even date, offering to redeem the homestead property for P16,000 covered
by a check. Upon being informed that she can no longer redeem the same for
the reason that it was already conveyed to the De la Cruzes pursuant to the
decision dated March 27, 1969, Vicenta left the office of the manager,
bringing with her the letter which she later on sent to Mr. Lopez by
registered mail, inclosed In another letter dated March 3, 1970, reteirating
her desire to redeem the homestead land. Mr. Lopez sent said letters to the
BPI's legal counsel with specific request to inform the Tolentinos that they
can still redeem the two other properties covered by T.C.T. Nos. 11085 and
11626 before the expiration of the redemption period upon payment of the
amount of P75,995.07 — the balance remaining after deducting the amount
of P16,000 paid by the De la Cruzes for the homestead property. However,
instead of complying with BPI's advice, Vicente consigned with the Office of

the City Sheriff of Davao a crossed PNB check for P91,995.07 drawn against
the PNB Kidapawan Branch, Cotabato, on March 31, 1970, allegedly for the
redemption of the 3 lots, including the homestead land. The following day,
however, upon advice of their counsel, Vicente issued a stop-payment order
against the said crossed check purportedly to protect her rights and to
prevent BPI cashing said check without returning all the properties which BPI
had foreclosed and purchased.
Simultaneously with the consignation of the crossed check with the City
Sheriff of Davao on March 31, 1970, the Tolentinos filed a complaint
(redemption case) 6 against BPI, amended on April 15, 1970, with the Davao
Court of First Instance for the redemption of their properties covered by
T.C.T. Nos. 11135, 11085 and 11626, which were foreclosed by and sold to
BPI, with a prayer for damages, imputing bad faith on BPI in allegedly
refusing to allow them to redeem all three lots and praying that BPI be
ordered to allow the Tolentinos to redeem their properties, to accept the
payment consigned by them with the City Sheriff's Office of Davao, and to
pay moral and exemplary damages in the sum of P95,000 plus attorney's fees
and costs of suit. BPI seasonably filed an answer with counterclaim, denying
the material averments of the complaint, the truth being that the Tolentinos
did not have an intention to redeem their said properties but only the
homestead land. BPI counterclaimed for exemplary damages in the sum of
P5,000 and attorney's fees in the sum of P4,000 plus costs.
On April 10, 1973, the trial court rendered its decision dismissing the
complaint of the Tolentinos, with no particular pronouncement as to
attorney's fees but with costs against the Tolentinos. From that decision,
both the Tolentinos and BPI appealed to the respondent Court of Appeals,
docketed under CA-G.R. No. 53907- R, the Tolentinos claiming that -
l. The lower court erred in finding that the title to the
land covered by T.C.T. No. 11135 legally passed to the
heirs of Ceferino de la Cruz;
2. The lower court erred in holding that defendant-
appellant (herein respondent BPI) was legally justified,
in refusing plaintiffs-appellants' (Tolentinos) demand
to be allowed to redeem the lands in question; and
3. The lower court erred in not granting plaintiffs-
appellants' (Tolentinos) claim for damages.
while BPI claims that the trial court erred in not holding the Tolentinos liable
for damages and attorney's fees despite its findings that they acted in
evident bad faith in —
a. filing the complaint in the redemption case; and
b. issuing a crossed check drawn against the PNB,
Kidapawan Branch, and likewise, in depositing said
check with the Sheriff's Office allegedly to redeem the
foreclosed properties and, thereafter, the day
following the deposit in issuing a stop-payment order
on said check.
Acting upon a written request dated March 26, 1976 filed by the Tolentinos
for the consolidation of the two appealed cases, CA-G.R. Nos. 53907-R (Civil
Case No. 6830) and 54004-R (Civil Case No. 5432), the respondent Court of
Appeals resolved, after considering the comment of the BPI and the
opposition of the De la Cruzes, to grant the motion for consolidation by the
Tolentinos.
In a consolidated decision 7 promulgated on February 22, 1978, the
respondent Court of Appeals held:
In the Repurchase Case —
(1) that "despite the order of the trial court as prayed for by appellants
granting them a ten-day period of extension to file their answer which was to
expire on June 12, 1967, extended by operation of law to June 13, 1967,
because June 12 was a holiday, the Tolentinos failed to file their answer.
Instead, on June 14, 1967, which was already late, the Tolentinos filed a
motion to dismiss, which is not even a responsive pleading, followed by their
answer filed more than five months after, on November 24, 1967. The
Tolentinos having failed to observe the requirements of the Rules of Court,
no abuse of discretion could be imputed to the court a quo in ordering them
in default." 8 While "default orders are judicially frowned upon, Quirante vs.
Verano (L-30207, February 27, 1971, 37 SCRA 801) explicitly admonishes that
such 'is true only in meritorious cases, that is, where the failure to file answer
on time was due to fraud, accident, mistake, or excusable negligence and
29
when the existence of a good and substantial defense has been shown.' No
showing was made in the case at bar, that the Tolentinos' failure to file their
answer on time was due to any of these grounds. The contention and
insistence of counsel for the Tolentinos that he filed through his clerk the
motion to dismiss on June 13 but only stamped June 14, 1967, attributing
negligence instead to the docket clerk of the lower court was not believed by
the lower court, and we (Court of Appeals) find no cogent reason for
believing otherwise. " 9 The Court of Appeals ruled further that
"compounding the errors, is the failure of the Tolentinos and/or their counsel
to appear on January 12, 1968, the date set for hearing of their petition for
relief, the reason given by counsel that he was out-of-town when his clerk
received the notice, and that his said clerk did not notify him nor did he note
said date on their trial calendar, being clearly a case of inexcusable
negligence. "
(2) that the supposed existence of a good and meritorious defense relied by
the Tolentinos consisting of the alleged expiration of the five-year period for
the repurchase of the homestead lot under Commonwealth Act No. 141 is
clearly belied by the records of the case which show that the offer to
repurchase the homestead land made by the De la Cruzes was well within
the 5-year period required by law; and
(3) that the Tolentinos' claim that the lower court ordered the execution of
the default judgment before its finality due to the absence of service of the
default judgment on them is not well- taken because this issue has already
been settled in CA G.R. No. SP-46321 rendered on November 15, 1971,
where it was found, after an investigation was conducted on the alleged
disappearance of that page of the record where the receipts by the
respective parties were indicated, that the Tolentinos through their counsel
were duly served with a copy of the default judgment.
In the Redemption Case
(1) in dismissing the Tolentinos' appeal, the respondent court reasoned that
although there is no quarrel that the Tolentinos had 12 months within which
to redeem the properties sold at the Sheriff's sale counted from the time it
was registered on April 2, 1969, the problem, however, lies in the manner of
the tender of payment made by them, granting they made one, "since
consignation by crossed check does not satisfy the requirements set forth in
Article 1249 of the New Civil Code governing the payment of debts in money,
which 'shall be made in the Currency stipulate and if it is not possible to
deliver such currency, then in the currency which is legal tender in the
Philippines.' Admittedly, a check, even if good when offered, does not satisfy
the requirements of a legal tender, and for that very reason, BPI was not
legally bound to accept such tender of payment." Hence, no error was
committed by the court a quo in dismissing the Tolentinos' complaint for
redemption with damages.
(2) in dismissing BPI's appeal, the respondent Court stated that "no bad faith
should be attributed to the Tolentinos for filing the instant case for
redemption, in the absence of a proven motive to harass the BPI considering
that in so filing these cases, the Tolentinos acted in the belief that they are
exercising certain rights under the law, and considering further that they,
too, had to spend in prosecuting their claims, no matter how unfounded they
may have proven to be."
On April 24, 1978, the Tolentinos filed a Motion for Reconsideration 10 in the
Court of Appeals of the decision rendered in CA-G.R. No. 53907-R on the
ground that "the right to redeem is not an obligation or debt but rather a
privilege, hence, the provisions of Article 1249 N.C.C. governing payment of
debts in money" do not apply in this case; and, of the decision rendered in
CA-G.R. No. 54004-R on the ground that the respondent court erred in not
considering that the trial court abused its discretion in declaring the
Tolentinos in default, and that the period within which the De la Cruzes can
repurchase the homestead land had already expired, This Motion for
Reconsideration was denied by the respondent court for lack of merit in a
Resolution dated March 30, 1979.
Hence, the instant petition for review from the foregoing consolidated
Decision and Resolution raising the following issues:
I
WHETHER OR NOT ARTICLE 1249 OF THE NEW CIVIL
CODE APPLIES IN THE CASE AT BAR;
II
WHETHER OR NOT THE TENDER OF PAYMENT AND
CONSIGNATION MADE BY THE TOLENTINOS BEFORE
THE CITY SHERIFF OF DAVAO WERE VALID; and

III
WHETHER THE DEFAULT JUDGMENT AGAINST THE
TOLENTINOS IN CIVIL CASE NO. 5432 (CA-G.R. No.
54004-R) HAS BECOME FINAL AND EXECUTORY.
It is worthwhile to remember that Article 1249 of the new Civil Code deals
with a mode of extinction of an obligation and expressly provides for the
medium in the "payment of debts." Thus, it provides that:
The payment of debts in money shall be made in the
currency stipulated, and if it is not possible to deliver
such currency, then in the currency which is legal
tender in the Philippines.
The 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.
We are of the considered view that the aforequoted Article should not be
applied in the instant case, hereinafter explained, together with the
exposition on the resolution of the second issue raised in this petition, the
first two issues raised hinging ultimately on whether the Tolentinos may
redeem the properties in suit.
To start with, the Tolentinos are not indebted to BPI their mortgage
indebtedness having been extinguished with the foreclosure and sale of the
mortgaged properties. After said foreclosure and sale, what remains is the
right vested by law in favor of the Tolentinos to redeem the properties within
the prescribed period. This right of redemption is an absolute privilege, the
exercise of which is entirely dependent upon the will and discretion of the
redemptioners. There is, thus, no legal obligation to exercise the right of
redemption. 11 Said right, can in no sense, be considered an obligation, for
the Tolentinos are under no compulsion to exercise the same. Should they
choose not to exercise it, nobody can compel them to do so nor win such
choice give rise to a cause of action in favor of the purchaser at the auction
sale. In fact, the relationship between said purchaser and the redemptioners
is not even that of creditor and debtor. 12
On the other hand, if the redemptioners choose to exercise their right of
redemption, it is the policy of the law to aid rather than to defeat the right of
redemption. 13 It stands to reason therefore, that redemptions should be
looked upon with favor and where no injury is to follow, a liberal
construction will be given to our redemption laws as well as to the exercise
of the right of redemption. In the instant case, the ends of justice would be
better served by affording the Tolentinos the opportunity to redeem the
properties in question other than the homestead land, in line with the policy
aforesaid, to which We adhere fully notwithstanding the reason advanced by
the Court of Appeals in its Resolution, denying a reconsideration of its
decision, which reads:
We agree that the act of redeeming of a property
mortgaged is not an obligation but a privilege, in the
sense that the mortgagor may or may not redeem his
property. That of course is a privilege. He may choose
to give up the property and have the mortgage
foreclosed, or redeem the property with the obligation
of course to pay the loan or indebtedness. But where
he elects to redeem the property and he has to pay the
loan for which the mortgage was constituted, then Art.
1249 of the Civil Code applies because it involves now
the 'payment of debts.' It is only the act of redeeming
or not that is considered a privilege, but not the act of
paying the obligation once the mortgagor has elected
to redeem the property, in which case the check issued
or drawn shall produce the effect of payment only
when it has been cashed. 14
Under existing jurisprudence, what the redemptioner should pay, is not the
amount of the "loan for which the mortgage was constituted" as stated by
the Court of Appeals, but the auction purchase price plus 1 % interest per
month on the said amount up to the time of redemption, together with the
taxes or assessment paid by the purchaser after the purchase, if any. 15 And
in this connection, a formal offer to redeem, accompanied by a bona
fide tender of the redemption price, although proper, is not essential where,
as in the instant case, the right to redeem is exercised thru the filing of
30
judicial action, which as noted earlier was made simultaneously with the
deposit of the redemption price with the Sheriff, within the period of
redemption. The formal offer to redeem, accompanied by a bona fide tender
of the redemption price within the period of redemption prescribed by law,
is only essential to preserve the right of redemption for future enforcement
even beyond such period of redemption. The filing of the action itself, within
the period of redemption, is equivalent to a formal offer to redeem. 16 Should
the court allow redemption, the redemptioners should then pay the amount
already adverted to.
Moreover, when the action to redeem was filed, a simultaneous deposit of
the redemption money was tendered to the Sheriff and under the last
sentence of Section 31, Rule 39 of the Rules of Court, it is expressly provided
that the tender of the redemption money may be made to the Sheriff who
made the sale. 17 And the redemption is not rendered in valid by the fact that
the said officer accepted a check for the amount necessary to make the
redemption instead of requiring payment in money. It goes without saying
that if he had seen fit to do so, the officer could have required payment to be
made in lawful money, and he undoubtedly, in accepting a check, placed
himself in a position where he could be liable to the purchaser at the public
auction if any damage had been suffered by the latter as a result of the
medium in which payment was made. But this cannot affect the validity of
the payment. The check as a medium of payment in commercial transactions
is too firmly established by usage to permit of any doubt upon this point at
the present day. 18 No importance may thus be attached to the circumstance
that a stop-payment order was issued against said check the day following
the deposit, for the same will not militate against the right of the Tolentinos
to redeem, in the same manner that a withdrawal of the redemption money
being deposited cannot be deemed to have forfeited the right to redeem,
such redemption being optional and not compulsory. 19 Withal, it is not
clearly shown that said stop payment order was made in bad faith. But while
we uphold the right of redemption of the Tolentinos, the same does not
apply to the homestead land, for the reason that shall be indicated in the
discussion of the third issue.
It is a matter beyond dispute that We can review decisions of the Court of
Appeals only on errors of law, its findings 6f fact being generally conclusive.
BPI argued that the default judgment in Civil Case No. 5432 (CA-G.R. No.
54004-R) had already become final and executory; that the lower court
found, after an investigation was conducted on the matter, that petitioners
were duly served with the default judgment; that this finding was affirmed by
the Court of Appeals in CA G.R. No. SP-46321 rendered on November 15,
1971, which decision G.R. No. SP-46321 rendered on November 15, 1971,
which decision had already been final and, therefore, the question of
whether or not petitioners were duly served with a copy of said judgment
should now be considered closed, said question being factual.20
As may be expected, the Tolentinos maintain that said question is one of law;
that they did not in fact receive a copy of the default judgment; and that the
only reason for the finding of the lower court that there was a valid service of
default judgment was the sole testimony of BPI's counsel, who cannot even
recall the date when the alleged service was made, and there is no evidence
as to the mode of such service. 21
In resolving their diametrically opposed propositions, it should be
remembered that for a question to be one of law, it must involve no
examination of the probative value of the evidence presented by the litigants
or any of them. 22 The query here presented, necessarily invites calibration of
the evidence to determine whether or not there was really such service. As
such, the question must be deemed to be factual in character and content,
and as correctly pointed out by BPI, the jurisprudence on the matter is that
findings of facts of the lower court are accorded the highest degree of
respect. 23 It is not the function of this Court to analyze or weight the
evidence all over again, its jurisdiction being limited to reviewing errors of
law that might have been committed by the lower court. 24
And as already intimated earlier, appreciation of evidence is within the
domain of the respondent Court of Appeals because its findings of facts, as a
general rule, are not reviewable by the Supreme Court. 25 This has been the
oft-repeated and well-established rule which has been reiterated in a long
line of cases enumerated in Chan v. Court of Appeals 26 and Tapas v. Court of
Appeals, 27 and in the more recent cases of Baptista v. Carillo  28 and Vda. de
Catindig v. Heirs of Catalino Roque, 29 and We find no circumstance existing in
this case, to justify a departure from the said rule, More importantly, the
petitioners not having appealed therefrom, the decision had already attained
the character of finality. The question of service cannot now be reopened or
raised again in this proceedings for otherwise, there will be no end to a
litigation. Public policy and sound practice demand that judgment of courts
should become final at some definite date fixed by law. 30
Finally, We find no abuse of discretion, much less a grave abuse thereof,
committed by the lower court in issuing an order, which was affirmed by
respondent Court of Appeals, denying the Tolentinos' petition for relief from

judgment for lack of merit, the same being supported by substantial
evidence.
IN VIEW OF THE FOREGOING CONSIDERATIONS, the appealed consolidated
decision and resolution of the Court of Appeals are hereby MODIFIED and
judgment is hereby rendered authorizing the petitioners to redeem the
properties subject matter hereof, other than the homestead land, within
thirty (30) days from entry of judgment, and ordering private respondent BPI
to execute a deed of absolute conveyance thereof in favor of the petitioners
upon payment by the latter of the purchase price thereof, with 1% per
month interest thereon in addition, up to the time of redemption, together
with the amount of any taxes or assessments which BPI may have paid
thereon after purchase, if any. In all other respects, the aforesaid
consolidated decision and resolution of the Court of Appeals are hereby
AFFIRMED. No pronouncement as to costs at this instance.
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 PEÑARROYO, SPS. ARSENIO B. REYES &
AMANDA SANTOS, and DELFIN JAO, respondents.
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 petitioner's 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
Peñarroyo (hereinafter called respondent Peñarroyo), 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 Peñarroyo,
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 Peñarroyo, 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 Peñarroyo caused the annotation on the title of an
adverse claim as evidenced by Entry No. P.E.-6118/T-28993, inscribed on 18
January 1997.
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
Peñarroyo 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 Peñarroyo filed a
complaint for specific performance, praying that petitioner be ordered to
deliver to respondent Peñarroyo 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 Peñarroyo; to pay respondents the sum of
P20,000.00 as attorney's fees; and to pay the costs of the suit.
31
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
Peñarroyo, respondent Jao alleged that the subject lot which had been sold
to respondent Peñarroyo 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, 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 V. Papa.
Respondent Jao, likewise, averred that as a result of petitioner's refusal to
deliver the title to the property to respondents Valencia and Peñarroyo, 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 attorney's 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 other's 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 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 Peñarroyo 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 respondents
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 canceling
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
Peñarroyo 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 petitioner's right to redeem the property.
At the trial, only respondent Peñarroyo 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 Peñarroyo 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 Peñarroyo the sum of P45,000.00
plus legal interest of 12% from June 15, 1973;
3) Ordering plaintiff Felix Peñarroyo to execute and
deliver to intervenor a deed of absolute sale over the
same property, upon the latter's payment to the
former of the balance of the purchase price of
P71,500.00;
Should this not be possible, plaintiff Felix Peñarroyo 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 attorney's 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 Peñarroyo in payment of the full purchase price of
the subject lot. He maintained that what said respondent 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 appellant's brief.
On 27 January 1992, the Court of Appeals rendered a decision, affirming with
modification the trial court's 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 owner's duplicate of TCT No. 28993 of
Angela M. Butte and the peaceful possession and
enjoyment of the lot in question or, if the owner's
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 Peñarroyo. In all other
respects, the decision appealed from is AFFIRMED.
Costs against defendant-appellant Myron C. Papa.
2
SO ORDERED.
In affirming the trial court's decision, respondent court held that contrary to
petitioner's 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 Peñarroyo
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 petitioner's 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 petitioner's 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
32
which the estate of Angela M. Butte might have to the estate of Ramon Papa,
Jr. is strictly between them. Respondents Valencia and Peñarroyo 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
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 Peñarroyo 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 Peñarroyo, as evidenced by a
letter addressed to him in which said respondents wrote, in part:
. . . 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 property's
mortgage. The money is with me and if it is alright
with you, I would like to tender the payment as soon
as possible. . . .8
We find no merit in petitioner's arguments.
It is an undisputed fact that respondents Valencia and Peñarroyo 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 Petitioner's assertion that he never encashed the aforesaid
check is not substantiated 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 party 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 creditor's 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
 33

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 no-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 Peñarroyo 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 owner's duplicate of TCT No. 28993 of Angela M. Butte and the
peaceful possession and enjoyment of the lot in question.
00190 and CA-G.R. SP No. 00253, as well as the Resolution 2 dated June 1,
2006 denying the Motion for Reconsideration.
The factual and procedural antecedents of this case are as follows:
On November 21, 1995, petitioner Union Bank of the Philippines (Union
Bank) and respondent spouses Rodolfo T. Tiu and Victoria N. Tiu (the spouses
Tiu) entered into a Credit Line Agreement (CLA) whereby Union Bank agreed
to make available to the spouses Tiu credit facilities in such amounts as may
be approved.3 From September 22, 1997 to March 26, 1998, the spouses Tiu
took out various loans pursuant to this CLA in the total amount of three
million six hundred thirty-two thousand dollars (US$3,632,000.00), as
evidenced by promissory notes:
PN No. Amount in US$ Date Granted
87/98/11
72,000.00 02/16/98
1

With regard to the alleged assignment of mortgage rights, respondent 87/98/10

84,000.00 02/13/98
Court of Appeals has found that the conditions under which said mortgage 8
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 87/98/15
320,000.00 03/02/98
could shed light on the transactions leading to the said assignment of 2
rights; nor is there any evidence on record of the conditions under which
87/98/07
said mortgage rights were assigned. What is certain is that despite the said 150,000.00 01/30/98
5
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 87/98/21
by petitioner himself in his answer to respondent's complaint as well as in 32,000.00 03/26/98
1
the third-party complaint that petitioner filed against respondent-spouses
Arsenio B. Reyes and Amanda Santos.15 Assuming arquendo that the 87/98/07
110,000.00 01/29/98
mortgage rights of the Associated Citizens Bank had been assigned to the 1
estate of Ramon Papa, Jr., and granting that the assigned mortgage rights
validly exists and constitute a lien on the property, the estate may file the 87/98/10
135,000.00 02/13//98
appropriate action to enforce such lien. The cause of action for specific 7
performance which respondents Valencia and Peñarroyo have against
87/98/10
petitioner is different from the cause of action which the estate of Ramon 75,000.00 02/12/98
0
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 bank's rights of 87/98/19
mortgage. 195,000.00 03/19/98
7

Finally, the estate of Angela M. Butte is not an indispensable party. Under 87/97/76
60,000.00 09/26/97
Section 3 of Rule 3 of the Rules of Court, an executor or administrator may 1
sue or be sued without joining the party for whose benefit the action is 87/97/76
presented or defended, thus: 30,000.00 09/29/97
8

Sec. 3. Representative parties. — A trustee of an 87/97/76

180,000.00 09/29/97
express trust, a guardian, executor or administrator, 7
or a party authorized by statute, may sue or be sued
87/97/97
without joining the party for whose benefit the action 110,000.00 12/29/97
0
is presented or defended; but the court may, at any
stage of the proceedings, order such beneficiary to be 87/97/74
made a party. An agent acting in his own name and 50,000.00 09/22/97
7
for the benefit of an undisclosed principal may sue or
be sued without joining the principal except when the 87/96/94
605,000.00 12/19/97
contract involves things belonging to the principal. 16 4

87/98/19
Neither is the estate of Ramon Papa, Jr. an indispensable party without 470,000.00 03/16/98
1
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 87/98/19
property may still be enforced regardless of the change in ownership 505,000.00 03/19/98
8
thereof.
87/98/09
449,000.00 02/09/98
0
WHEREFORE, the petition for review is hereby DENIED and the Decision of
the Court of Appeals, dated 27 January 1992 is AFFIRMED.   US$3,632,000.004  

SO ORDERED.
On June 23, 1998, Union Bank advised the spouses Tiu through a letter 5 that,
in view of the existing currency risks, the loans shall be redenominated to
G.R. Nos. 173090-91               September 7, 2011 their equivalent Philippine peso amount on July 15, 1998. On July 3, 1998,
the spouses Tiu wrote to Union Bank authorizing the latter to redenominate
UNION BANK OF THE PHILIPPINES, Petitioner, the loans at the rate of US$1=₱41.406 with interest of 19% for one year.7
vs.
SPOUSES RODOLFO T. TIU AND VICTORIA N. TIU, Respondents. On December 21, 1999, Union Bank and the spouses Tiu entered into a
Restructuring Agreement.8 The Restructuring Agreement contains a clause
DECISION wherein the spouses Tiu confirmed their debt and waived any action on
account thereof. To quote said clause:

LEONARDO-DE CASTRO, J.:
This is a Petition for Review on Certiorari seeking to reverse the Joint
Decision1 of the Court of Appeals dated February 21, 2006 in CA-G.R. CV No.
1. Confirmation of Debt – The BORROWER hereby confirms and accepts that
as of December 8, 1999, its outstanding principal indebtedness to the BANK
under the Agreement and the Notes amount to ONE HUNDRED FIFTY[-]FIVE
MILLION THREE HUNDRED SIXTY[-]FOUR THOUSAND EIGHT HUNDRED PESOS
(PHP 155,364,800.00) exclusive of interests, service and penalty charges (the

"Indebtedness") and further confirms the correctness, legality, collectability
and enforceability of the Indebtedness. The BORROWER unconditionally
waives any action, demand or claim that they may otherwise have to dispute
the amount of the Indebtedness as of the date specified in this Section, or
the collectability and enforceability thereof. It is the understanding of the
parties that the BORROWER’s acknowledgment, affirmation, and waiver
herein are material considerations for the BANK’s agreeing to restructure the
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 amount (₱155,364,800.00) is the sum of the following
figures: (1) ₱150,364,800.00, which is the value of the US$3,632,000.00 loan
as redenominated under the above-mentioned exchange rate of
US$1=₱41.40; and (2) ₱5,000,000.00, an 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 (₱104,668,741.00) (total 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 amount of
₱25,130,000.00. The Deed states that these properties shall be
leased to the Tiu spouses at a monthly rate of ₱98,000.00 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. Fortuna St., Mandaue City, covered by TCT No. T-
31604 and with a land area of 2,960 square meters, for the
amount of ₱36,080,000.00. The Deed states that said property
shall be leased to the Tiu spouses at a monthly rate of
₱150,000.00 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
(₱104,668,741.00) via three loan facilities (payment schemes).
The spouses Tiu claim to have made the following payments: (1)
₱15,000,000.00 on August 3, 1999; and (2) another ₱13,197,546.79 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
₱89,407,546.79.15
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 T. Tiu, Rosalinda T. King, Rufino T. Tiu,
Rosalie T. Young and Rosenda T. Tiu, filed with the Regional Trial Court (RTC)
of Mandaue City a Complaint seeking to have the Extrajudicial Foreclosure
declared null and void. The case was docketed as Civil Case No. MAN-
4363.16 Named as defendants were Union Bank and Sheriff IV Veronico C.
Ouano (Sheriff Oano) of Branch 55, RTC, Mandaue City. Complainants therein
prayed for the following: (1) that the spouses Tiu be declared to have fully
paid their obligation to Union Bank; (2) that defendants be permanently
enjoined from proceeding with the auction sale; (3) that Union Bank be
ordered to return to the spouses Tiu their properties as listed in the
Complaint; (4) that Union Bank be ordered to pay the plaintiffs the sum of
₱10,000,000.00 as moral damages, ₱2,000,000.00 as exemplary damages,
₱3,000,000.00 as attorney’s fees and ₱500,000.00 as expenses of litigation;
and (5) a writ of preliminary injunction or temporary restraining order be
issued enjoining the public auction sale to be held on July 18, 2002.17
The spouses Tiu claim that from the beginning the loans were in pesos, not in
dollars. Their office clerk, Lilia Gutierrez, testified that the spouses Tiu merely
received the peso equivalent of their US$3,632,000.00 loan at the rate of
34
US$1=₱26.00. The spouses Tiu further claim that they were merely forced to
sign the Restructuring Agreement and take up an additional loan of
₱5,000,000.00, the proceeds of which they never saw because this amount
was immediately applied by Union Bank to interest payments.18
The spouses Tiu allege that the foreclosure sale of the mortgaged properties
was invalid, as the loans have already been fully paid. They also allege that
they are not the owners of the improvements constructed on the lot because
the real owners thereof are their co-petitioners, Juanita T. Tiu, Rosalinda T.
King, Rufino T. Tiu, Rosalie T. Young and Rosenda T. Tiu.19
The spouses Tiu further claim that prior to the signing of the Restructuring
Agreement, they entered into a Memorandum of Agreement with Union
Bank whereby the former deposited with the latter several certificates of
shares of stock of various companies and four certificates of title of various
parcels of land located in Cebu. The spouses Tiu claim that these properties
have not been subjected to any lien in favor of Union Bank, yet the latter
continues to hold on to these properties and has not returned the same to
the former.20
On the other hand, Union Bank claims that the Restructuring Agreement was
voluntarily and validly entered into by both parties. Presenting as evidence
the Warranties embodied in the Real Estate Mortgage, Union Bank contends
that the foreclosure of the mortgage on the residential property of the
spouses Tiu was valid and that the improvements thereon were absolutely
owned by them. Union Bank denies receiving certificates of shares of stock of
various companies or the four certificates of title of various parcels of land
from the spouses Tiu. However, Union Bank also alleges that even if said
certificates were in its possession it is authorized under the Restructuring
Agreement to retain any and all properties of the debtor as security for the
loan.21
The RTC issued a Temporary Restraining Order22 and, eventually, a Writ of
Preliminary Injunction23 preventing the sale of the residential property of the
spouses Tiu. 24
On December 16, 2004, the RTC rendered its Decision 25 in Civil Case No.
MAN-4363 in favor of Union Bank. The dispositive portion of the Decision
read:
WHEREFORE, premises considered, judgment is hereby rendered dismissing
the Complaint and lifting and setting aside the Writ of Preliminary Injunction.
No pronouncement as to damages, attorney’s fees and costs of suit.26
In upholding the validity of the Restructuring Agreement, the RTC held that
the spouses Tiu failed to present any evidence to prove either fraud or
intimidation or any other act vitiating their consent to the same. The exact
obligation of the spouses Tiu to Union Bank is therefore ₱104,668,741.00, as
agreed upon by the parties in the Restructuring Agreement. As regards the
contention of the spouses Tiu that they have fully paid their indebtedness,
the RTC noted that they could not present any detailed accounting as to the
total amount they have paid after the execution of the Restructuring
Agreement.27
On January 4, 2005, Union Bank filed a Motion for Partial
Reconsideration,28 protesting the finding in the body of the December 16,
2004 Decision that the residential house on Lot No. 639 is not owned by the
spouses Tiu and therefore should be excluded from the real properties
covered by the real estate mortgage. On January 6, 2005, the spouses Tiu
filed their own Motion for Partial Reconsideration and/or New Trial. 29 They
alleged that the trial court failed to rule on their fourth cause of action
wherein they mentioned that they turned over the following titles to Union
Bank: TCT Nos. 30271, 116287 and 116288 and OCT No. 0-3538. They also
prayed for a partial new trial and for a declaration that they have fully paid
their obligation to Union Bank.30
On January 11, 2005, the spouses Tiu received from Sheriff Oano a Second
Notice of 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 Appeals a Petition for Prohibition and Injunction with Application for
TRO/Writ of Preliminary Injunction.31 The petition was docketed as CA-G.R.
SP No. 00253. The Court of Appeals issued a Temporary Restraining Order on
January 27, 2005.32
On January 19, 2005, the RTC issued an Order denying Union Bank’s Motion
for Partial Reconsideration and the Tiu spouses’ Motion for Partial
Reconsideration and/or New Trial.33
Both the spouses Tiu and Union Bank appealed the case to the Court of
Appeals.34 The two appeals were given a single docket number, CA-G.R. CEB-

CV No. 00190. Acting on a motion filed by the spouses Tiu, the Court of
Appeals consolidated CA-G.R. SP No. 00253 with CA-G.R. CEB-CV No. 00190.35
On April 19, 2005, the Court of Appeals issued a Resolution finding that there
was no need for the issuance of a Writ of Preliminary Injunction as the
judgment of the lower court has been stayed by the perfection of the appeal
therefrom.36
On May 9, 2005, Sheriff Oano proceeded to conduct the extrajudicial sale.
Union Bank submitted the lone bid of ₱18,576,000.00.37 On June 14, 2005,
Union Bank filed a motion with the Court of Appeals praying that Sheriff
Oano be ordered to issue a definite and regular Certificate of Sale. 38 On July
21, 2005, the Court of Appeals issued a Resolution denying the Motion and
suspending the auction sale at whatever stage, pending resolution of the
appeal and conditioned upon the filing of a bond in the amount of
₱18,000,000.00 by the Tiu spouses.39 The Tiu spouses failed to file said
bond.40
On February 21, 2006, the Court of Appeals rendered the assailed Joint
Decision in CA-G.R. CV No. 00190 and CA-G.R. SP No. 00253. The Court of
Appeals dismissed the Petition for Prohibition, CA-G.R. SP No. 00253, on the
ground that the proper venue for the same is with the RTC.41
On the other hand, the Court of Appeals ruled in favor of the spouses Tiu in
CA-G.R. CV No. 00190. The Court of Appeals held that the loan transactions
were in pesos, since there was supposedly no stipulation the loans will be
paid in dollars and since no dollars ever exchanged hands. Considering that
the loans were in pesos from the beginning, the Court of Appeals reasoned
that there is no need to convert the same. By making it appear that the loans
were originally in dollars, Union Bank overstepped its rights as creditor, and
made unwarranted interpretations of the original loan agreement. According
to the Court of Appeals, the Restructuring Agreement, which purportedly
attempts to create a novation of the original loan, was not clearly authorized
by the debtors and was not supported by any cause or consideration. Since
the Restructuring Agreement is void, the original loan of ₱94,432,000.00
(representing the amount received by the spouses Tiu of US$3,632,000.00
using the US$1=₱26.00 exchange rate) should subsist. The Court of Appeals
likewise invalidated (1) the ₱5,000,000.00 charge for interest in the
Restructuring Agreement, for having been unilaterally imposed by Union
Bank; and (2) the lease of the properties conveyed in dacion en pago, for
being against public policy. 42
In sum, the Court of Appeals found Union Bank liable to the spouses Tiu in
the amount of ₱927,546.79. For convenient reference, we quote relevant
portion of the Court of Appeal’s Decision here:
To summarize the obligation of the Tiu spouses, they owe Union Bank
₱94,432,000.00. The Tiu spouses had already paid Union Bank the amount of
₱89,407,546.79. On the other hand, Union Bank must return to the Tiu
spouses the illegally collected rentals in the amount of ₱5,952,000.00. Given
these findings, the obligation of the Tiu spouses has already been fully paid.
In fact, it is the Union Bank that must return to the Tiu spouses the amount
of NINE HUNDRED TWENTY[-]SEVEN THOUSAND FIVE HUNDRED FORTY[-]SIX
PESOS AND SEVENTY[-]NINE CENTAVOS (₱927,546.79).43
With regard to the ownership of the improvements on the subject
mortgaged property, the Court of Appeals ruled that it belonged to
respondent Rodolfo Tiu’s 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 Plaintiff’s 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 ₱100,000.00 in moral damages, ₱100,000.00 in
exemplary damages, and ₱50,000.00 in attorney’s fees.48
The Court of Appeals disposed of the case as follows:
35
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 (₱927,546.79) 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 (₱100,000.00) in moral damages, ONE
HUNDRED THOUSAND PESOS (₱100,000.00) in exemplary damages, FIFTY
THOUSAND PESOS (₱50,000.00) in attorney’s 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 Bank’s Motion for Reconsideration.
Hence, this Petition for Review on Certiorari, wherein Union Bank submits
the following issues for the consideration of this Court:
1. WHETHER OR NOT THE COURT OF APPEALS COMMITTED
GRAVE AND REVERSIBLE ERROR WHEN IT CONCLUDED THAT
THERE WERE NO DOLLAR LOANS OBTAINED BY [THE] TIU SPOUSES
FROM UNION BANK DESPITE [THE] CLEAR ADMISSION OF
INDEBTEDNESS BY THE BORROWER-MORTGAGOR TIU SPOUSES.
2. WHETHER OR NOT THE COURT OF APPEALS COMMITTED
GRAVE AND REVERSIBLE ERROR WHEN IT NULLIFIED THE
RESTRUCTURING AGREEMENT BETWEEN TIU SPOUSES AND
UNION BANK FOR LACK OF CAUSE OR CONSIDERATION DESPITE
THE ADMISSION OF THE BORROWER-MORTGAGOR TIU SPOUSES
OF THE DUE AND VOLUNTARY EXECUTION OF SAID
RESTRUCTURING AGREEMENT.
3. WHETHER OR NOT THE COURT OF APPEALS COMMITTED
GRAVE AND REVERSIBLE ERROR WHEN IT PERMANENTLY
ENJOINED UNION BANK FROM FORECLOSING THE MORTGAGE ON
THE RESIDENTIAL PROPERTY OF THE TIU SPOUSES DESPITE THE
ADMISSION OF NON-PAYMENT OF THEIR OUTSTANDING LOAN TO
THE BANK BY THE BORROWER-MORTGAGOR TIU SPOUSES;
4. WHETHER OR NOT THE COURT OF APPEALS COMMITTED
GRAVE AND REVERSIBLE ERROR WHEN IT FIXED THE AMOUNT OF
THE OBLIGATION OF RESPONDENT SPOUSES CONTRARY TO THE
PROVISIONS OF THE PROMISSORY NOTES, RESTRUCTURING
AGREEMENT AND [THE] VOLUNTARY ADMISSIONS BY
BORROWER-MORTGAGOR TIU SPOUSES;
5. WHETHER OR NOT THE COURT OF APPEALS COMMITTED
GRAVE AND REVERSIBLE ERROR WHEN IT RULED ON THE ALLEGED
RENTALS PAID BY RESPONDENT SPOUSES WITHOUT ANY FACTUAL
BASIS;
6. WHETHER OR NOT THE COURT OF APPEALS COMMITTED
GRAVE AND REVERSIBLE ERROR WHEN IT HELD WITHOUT ANY
FACTUAL BASIS THAT THE LOAN OBLIGATION OF TIU SPOUSES
HAS BEEN FULLY PAID;
7. WHETHER OR NOT THE COURT OF APPEALS COMMITTED
GRAVE AND REVERSIBLE ERROR WHEN IT HELD WITHOUT ANY
FACTUAL BASIS THAT THE HOUSE INCLUDED IN THE REAL ESTATE
MORTGAGE DID NOT BELONG TO THE TIU SPOUSES.
8. WHETHER OR NOT THE COURT OF APPEALS COMMITTED
GRAVE AND REVERSIBLE ERROR IN ORDERING UNION BANK TO
RETURN THE CERTIFICATES OF SHARES OF STOCK AND TITLES TO
REAL PROPERTIES OF TIU SPOUSES ALLEGEDLY IN THE
POSSESSION OF UNION BANK.
9. WHETHER OR NOT THE COURT OF APPEALS VIOLATED THE
DOCTRINES AND PRINCIPLES ON APPELLATE JURISDICTION.

10. WHETHER OR NOT THE COURT OF APPEALS COMMITTED
GRAVE AND REVERSIBLE ERROR IN AWARDING DAMAGES
AGAINST UNION BANK.50
Validity of the Restructuring Agreement
As previously discussed, the Court of Appeals declared that the Restructuring
Agreement is void on account of its being a failed novation of the original
loan agreements. The Court of Appeals explained that since there was no
stipulation that the loans will 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 latter’s 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 bank’s 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=₱26.53 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
36
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
upheld57 the continued effectivity of Republic Act No. 529, which took effect
earlier on June 16, 1950. Pursuant to Section 158 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 Circular No. 1389 61 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 263 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 time of payment.64
Although the Credit Line Agreement between the spouses Tiu and Union
Bank was entered into on November 21, 1995,65 when the agreement to pay
in foreign currency was still considered void under Republic Act No. 529, the
actual loans,66 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 Coconut Planters Bank v. Beluso,67 we
held 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 Appeals’ 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 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 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 US$1=₱50.01 on December
2000.69 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 ₱150,364,800.00 and the unpaid interest at ₱5,000,000.00.
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 ₱40,447,185.60 before its execution; and (2) the
dollar loans had already been redenominated in 1997 at the rate of
US$1=₱26.34.70
We have painstakingly perused over the records of this case, but failed to
find any documentary evidence of the alleged payment of ₱40,447,185.60
before the execution of the Restructuring Agreement. In paragraph 16 of
their Amended Complaint, the spouses Tiu alleged payment of
₱40,447,185.60 for interests before the conversion of the dollar loan.71 This
was specifically denied by Union Bank in paragraph 5 of its Answer with
Counterclaim.72 Respondent Rodolfo Tiu testified that they made "50 million
plus" in cash payment plus "other monthly interest payments," 73 and
identified a computation of payments dated July 17, 2002 signed by
himself.74 Such computation, however, was never formally offered in
evidence and was in any event, wholly self-serving.
As regards the alleged redenomination of the same dollar loans in 1997 at
the rate of US$1=₱26.34, the spouses Tiu merely relied on the following
direct testimony of Herbert Hojas, one of the witnesses of Union Bank:
Q: Could you please describe what kind of loan was the loan of
the spouses Rodolfo Tiu, the plaintiffs in this case?
A: It was originally an FCDU, meaning a dollar loan.
Q: What happened to this FCDU loan or dollar loan?
A: The dollar loan was re-denominated in view of the very
unstable exchange of the dollar and the peso at that time,
Q: Could you still remember what year this account was re-
denominated from dollar to peso?
A: I think it was on the year 1997.
Q: Could [you] still remember what was then the prevailing
exchange rate between the dollar and the peso at that year 1997?
A: Yes. I have here the list of the dollar exchange rate from
January 1987 (sic). It was ₱26.34 per dollar.75
Neither party presented any documentary evidence of the alleged
redenomination in 1997. Respondent Rodolfo Tiu did not even mention it in
his testimony. Furthermore, Hojas was obviously uncertain in his statement
that said redenomination was made in 1997.
As pointed out by the trial court, the Restructuring Agreement, being
notarized, is a public document enjoying a prima facie presumption of
authenticity and due execution. Clear and convincing evidence must be
presented to overcome such legal presumption.76 The spouses Tiu, who
attested before the notary public that the Restructuring Agreement "is their
own free and voluntary act and deed,"77 failed to present sufficient evidence
to prove otherwise. It is difficult to believe that the spouses Tiu, veteran
businessmen who operate a multi-million peso company, would sign a very
important document without fully understanding its contents and
consequences.
This Court therefore rules that the Restructuring Agreement is valid and, as
such, a valid and binding novation of loans of the spouses Tiu entered into
from September 22, 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
37
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 ₱104,668,741.00. 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 13279 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 ₱15,000,000.00;
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
₱25,130,000.00. 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 ₱36,080,000.00.
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 ₱61,210,000.00;
21. Plaintiffs spouses Tiu also made other payment of the amount
of ₱13,197,546.79 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
₱155,364,800.00), 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

₱15,000,000.00 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 ₱13,197,546.79 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 Tiu’s
debt in the Restructuring Agreement, which was assented to more than a
year earlier. This amount (₱13,197,546.79) is even absent86 in the
computation of Union Bank of the outstanding debt, in contrast with the
₱15,000,000.00 payment which is included87 therein. Union Bank did not
explain this discrepancy and merely relied on the spouses Tiu’s failure to
formally offer supporting evidence. Since this payment of ₱13,197,546.79 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 (₱104,668,741.00) in the Restructuring Agreement, the result is that
the spouses Tiu still owe Union Bank ₱91,471,194.21.
(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 Tiu’s 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 3990 of their Amended Complaint, were
specifically denied in paragraph 9 of Union Bank’s 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 Tiu’s 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.
38
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
200092 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
₱98,000.00 per month for two years, or a total amount of ₱2,352,000.00. For
the A.S. Fortuna property, the Tiu spouses paid rentals in the amount of
₱150,000.00 per month for two years, or a total amount of ₱3,600,000.00.
The total amount in rentals paid by the Tiu spouses to Union Bank is FIVE
MILLION NINE HUNDRED FIFTY- TWO THOUSAND PESOS (₱5,952,000.00).
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
₱5,952,000.00, 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 Bank’s Possession
In the Amended Complaint, the spouses Tiu alleged95 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 Bank’s 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 Bank’s agent. All such moneys or properties shall be deemed in the
BANK’s possession as soon as put in transit to the BANK by mail or carrier.100
39
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 Tiu’s outstanding obligations. However, in the
event the parties fail to agree on the valuation of the subject properties,
Union Bank agrees to release the same.101 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
certificates,102 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.1avvphi1
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 Tiu’s debt,
Union Bank’s 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 latter’s 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 latter’s interest are not prejudiced by the
 40

former’s 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
₱927,546.79 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 ₱100,000.00 in moral damages,
₱100,000.00 in exemplary damages, ₱50,000.00 in attorney’s fees and cost,
both in the lower court and in this Court.

No further pronouncement as to costs.

SO ORDERED.