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Showing posts with label Negotiable Instruments Case Digest. Show all posts
Showing posts with label Negotiable Instruments Case Digest. Show all posts

Corporate Law and Negotiable Instruments Law Case Digest: Llorente v. Star City Pty Ltd. (2020)


First Division
Llorente v. Star City Pty Ltd.(2020)
G.R. No. 212050/G.R. No. 212216, January 15, 2020
Caguioa, J.


Lessons Applicable: Capacity to Sue, Jurisdiction of RTC, Isolation Transaction Rule, Bank Drafts, Drawer Liability, Effect of Stop Payment Order

Laws Applicable: Sec. 150 of RA 11232, Section 84 of the NIL

FACTS:
•    Star City Pty Limited (SCPL) operates as a casino in Sydney, New South Wales, Australia and claims that it is not doing business in the Philippines and is suing for an isolated transaction. 
•    November 25, 2002: It filed a complaint for collection of sum of money with prayer for preliminary attachment against Llorente, who was a patron of its Star City casino and Equitable PCI Bank (EPCIB).
•    July 12, 2000: Llorente negotiated two (2) Equitable PCI bank drafts with check numbers 034967 and 034968 worth 150,000 USD each or for the total amount of 300,000 USD in order to play in the Premium Programme of the casino.
•    The Premium Programme offers the patron a 1% commission rebate on his turnover at the gambling table and a .10% rebate for complimentary expense
•    Before upgrading Llorente to this programme, SCPL contracted 1st EPCIB to check the status of the subject drafts    
•    After Llorente confirmed that the same were issued on clear funds without any stop payment orders, his front money account in the casino was credited with 300,000 USD
•    July 18, 2000: SCPL deposited the drafts with Tomas Cook Ltd.
•    August 1, 2000: SCPL received the advise of Bank of New York about the “Stop Payment Order” (SPO) prompting it to make several demands upon Llorente who refused to pay
•    August 30, 2000: SCPL sought settlement from EPCIB which denied it on the ground of the SPO by LLorente and no notice of dishonor was given.
•    January 28, 2003: RTC granted the issuance of writ of preliminary attachment based on the indicative acts of Llorente of his intention to avoid his obligation and defraud SCPL (i.e. leaving hotel premise without informing SPCL his whereabouts, failing to pay for services availed of, requesting SPO despite availing of services, failure to communicate for the settlement of his obligations)
•    Llorente alleged that he caused the SPO because of SCPL’s commission of fraud and unfair gaming practices during his stay in the casino from July 12 to July 17, 2000.  He also sought the dismissal of the case on the ground of lack of legal capacity to sue since the “isolated transaction rule” only covers transaction which occurred in the Philippines when the same occurred in Australia.
•    EPCIB in its answer also alleged lack of personality to sue before the Philippine courts and denied that it unjustifiably and maliciously refused to settle the obligation since it merely complied with Llorente’s instruction.  Moreover, it stated that SCPL has no action against it since there was no privity of contract between them.  It also filed a cross-claim against Llorente since it already reimbursed the face value of the subject drafts, it is relieved of all liabilities under said drafts.
•    RTC: Found SPCL to have legal capacity to sue and held Llorente (as payee of the drafts and indorser who signed on its back) and EPCIB (as drawer of the drafts) solidarily liable for the value of the drafts.
•    CA: Denied Llorante’s appeal but partially granted EPCIB’s discharhing it from any responsibility considering that it already paid Llorente
•    CA denied both Llorente’s motion for reconsideration and SCPL’s partial motion for reconsideration
•    Llorente and SCPL filed an instant Rule 45 petitions for review on certiorari

ISSUES:
1.    W/N SCPL has the capacity to sue
2.    W/N Philippine courts have jurisdiction over the case
3.    W/N EPCIB should be liable as drawer

HELD:
1.    YES.
  • Sec. 150 of RA 11232 (Revised Corporation Code of the Philippines) (RCC) which became effective on February 23, 2019 (reproduction of Sec. 133 of BP 68) provides:
    • SEC.  150. Doing  Business  Without  a  License.–No  foreign  corporation  transacting business  in  the  Philippines  without  a  license,  or  its  successors  or  assigns,  shall  be  permitted  to maintain or intervene in any action, suit or proceeding in any court or administrative agency of the Philippines; but such corporation may be sued or proceeded against before Philippine courts or administrative tribunals on any valid cause of action recognized under Philippine laws
  • While the RCC grants to foreign corporations with Philippine license the right to sue in the Philippines, the Court, in the long line of cases under the regime of the Corporation Code has held that a foreign corporation not engaged in business in the Philippines may not be denied the right to file an action in the Philippines court for an isolated transaction. 
    • The issue on whether a foreign corporation which does not have license to engage in business the Philippines can seek redress in Philippine courts depends on whether it is doing business or it merely entered into an isolated transaction – qualifying circumstance essential part of the plaintiff’s capacity to sue (as a matter of pleading and procedure) should be affirmatively pleaded  
    • In the case at bar, SCPL alleged in its complaint that it is not doing business in the Philippines and is suing upon a singular and isolated transaction and appointed Jimeno, Jalandoni and Cope Law Offices as its attorney-in-fact.  The latter is irrelevant to its capacity to sue.
    • Moreover, Llorente in his answer pleaded an affirmative relief for damages from SCPL by way of counterclaim – contrary to his position that plaintiff has no capacity to sue and admitted the capacity of plaintiff to be subject of judicial process.  It would be unfair to allow it to be sued and not allowing it to sue on an isolated transaction here.

2.    Yes.
  • Complaint is for civil case for collection of sum of money which under BP 129 Section 19 RTCs have jurisdiction – above 400,000 in Metro Manila
    • Amount demanded: 300,000 USD plus legal interest from date of 1st demand on December 20, 2000 until full payment is 
  • Criminal case territorial jurisdiction involving checks: any of the places where the check is drawn, issued, delivered or dishonored has jurisdiction – subject drafts drawn by EPCIB, a Philippine bank

3.    Yes.
  • CA recognized SCPL as a holder in due course and it did not overturn the finding of the RTC that the subject demand/bank drafts are negotiable instruments.  In effect, 2 demand/bank drafts drawn by EPCIB with Llorante as the payee are negotiable instruments.
    • A draft is a form of a bill of exchange used mainly in transactions between persons physically remote from each other.  It is an order by 1 person, say the buyer of goods, address to a person having in possession funds of such buyer, ordering the addressee to pay the purchase price to the seller of the goods.  Where the order is made by 1 bank to another = bank drafts – negotiable instruments governed by the provisions of Negotiable Instruments Law (NIL)
  •  Both RTC and CA recognized EPCIB as the drawer of the subject demand/bank drafts. 
    • Sec. 61. Liability of drawer. - The drawer by drawing the instrument admits the existence of the payee and his then capacity to indorse; and engages that, on due presentment, the instrument will be accepted or paid, or both, according to its tenor, and that if it be dishonored and the necessary proceedings on dishonor be duly taken, he will pay the amount thereof to the holder or to any subsequent indorser who may be compelled to pay it. But the drawer may insert in the instrument an express stipulation negativing or limiting his own liability to the holder.
    • When the bank, as the drawer of a negotiable check, signs the instrument its engagement is then as absolute and express as if it were written on the check and a dual promise is implied from the issuance of the check:
  •  Bank upon which it is drawn will pay the amount thereof
    • If such bank should fail to make the payment, the drawer will pay the same to the holder
    • Drawing a check = drawer admits the existence of the payee and his then capacity to endorse; impliedly represents that he (payee) has funds or credits available for its payment in the bank which it is drawn; engages that if the bill is not paid by the drawee and due proceedings on dishonor are taken by the holder, he will upon demand pay the amount of the bill together with the damages and expenses accruing to the holder by reason of the dishonor of the instrument; and if the drawee refuses to accept a bill drawn upon him, becomes liable to pay the instrument according to his original undertaking
    • Liability of the drawer is secondary = after acceptance – conditional upon proper presentment and notice of dishonor, and, in case of a foreign bill of exchange, protest unless such conditions are excused or dispensed with. 
    • Section 84 of the NIL: When instrument is dishonored by non-payment, an immediate right of recourse to all parties secondarily liable thereon accrues to the holder, subject to the provision of the NIL
  • GR: Effect of countermand or stopping of payment by the drawer - Relation between the drawer and the payee = as if the instrument had been dishonored and notice thereof given to the drawer
    • drawer of a bill (including a draft or check) may by notice to the drawee prior to acceptance or payment countermand his order and command the drawee not to pay, in which case the drawee is obliged to refuse to accept or pay  Drawer’s conditional liability is changed to one free from the condition > like that of the maker of a promissory note due on demand – liable on the instrument if he has no sufficient defense
  •  EX: Draft drawn by 1 bank upon another and bought and paid for by a remitter, as the equivalent of money or as an executed sale of credit by the drawer, is not subject to rescission or countermand so as to avoid the drawer’s liability thereon.
    • Right to stop payment cannot be exercised so as to prejudice the rights of holders in due course without rendering the drawer liable on the instrument to such holders
  1. Liability of EPCIB as the drawer cannot be abrogated by the Indemnity Agreement because bank drafts are negotiable instruments nor can it argue that it has no privity of contract.  Its secondary liability under Section 61 of the NIL became primary when the payment of the subject demand/bank drafts had been stopped which had the same effect as if the instruments had been dishonored and notice thereof was given to the drawer pursuant to Section 84 of the NIL.
  2. If EPCIB is made liable on the subject demand/bank drafts, it has a recourse against the indemnity bond.  In effect, the indemnity bond required by EPCIB is in effect an admission of his liability to SCPL and Llorente’s citing exceeding his obligation to pay as reason for the SPO weakens his allegation of fraud and unfair gaming practice against SCPL.
  3. Unjust enrichment cannot apply to SPCL since party who received the benefit was Llorente.  Any payment to SCPL arising from the subject demand/bank drafts by EPCIB and/or Llorente can never be by mistake.
    • Art. 2154. If something is received when there is no right to demand it, and it was unduly delivered through mistake, the obligation to return it arises
    • Art. 2163. It is presumed that there was a mistake in the payment if something which had never been due or had already been paid was delivered; but he from whom the return is claimed may prove that the delivery was made out of liberality or for any other just cause.
  • Both Llorente and EPCIB are individually and primarily liable as endorser and drawer of the subject demand/bank drafts, repectively – SPCL may proceed to collect the damages awarded simultaneously or alternatively provided it is not more than the damages awarded
    • 300,000 USD with interest at the legal rate of 12% per annum from date of extrajudicial demand against EPCIB: August 30, 2002) (that was made subsequent to the extrajudicial demand against Llorente) and 6% per annum from July 1, 2013 until full payment and the payment for attorney’s fees equivalent to 5% of the amount of demand with interest of 6% per annum from finality of Decision until full payment    
  • Art. 1207. xxx There is a solidary liability only when the obligation expressly so states, or when the law or the nature of the obligation requires solidarity.
    • No contract nor does NIL provide for solidary obligation under the liability of the drawer

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

EN BANC

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

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



GUTIERREZ, JR., J.:

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

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

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

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

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

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

2. On the third cause of action, to pay to the plaintiff the amount of P18,200.00, representing the unrealized profit of 10% included in the contract price of P200,000.00 plus legal interest thereon from July 20,1967;

3. On the fourth cause of action, to pay to the plaintiff the amount of P20,000.00 as and for moral damages, with legal interest thereon from July 20, 1 967;

4. On the sixth cause of action, to pay to the plaintiff the amount of P5,000.00 damages as and for attorney's fee.

Plaintiffs second and fifth causes of action, and defendant's counterclaim, are dismissed.

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

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

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

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

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

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

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

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

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

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

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

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

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

As prayed for by counsel for the plaintiff, the Motion to Withdraw 'Motion for Partial Alias Writ of Execution with Substitute Motion for Alias Writ of Execution is hereby granted, and the motion for partial alias writ of execution is considered withdrawn.

Let an Alias Writ of Execution issue against the defendant for the fall satisfaction of the judgment rendered. Deputy Sheriff Jaime K. del Rosario is hereby appointed Special Sheriff for the enforcement thereof. (CA Rollo, p. 34)

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

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

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

I

AN ALIAS WRIT OF EXECUTION CANNOT BE ISSUED WITHOUT PRIOR RETURN OF THE ORIGINAL WRIT BY THE IMPLEMENTING OFFICER.

II

PAYMENT OF JUDGMENT TO THE IMPLEMENTING OFFICER AS DIRECTED IN THE WRIT OF EXECUTION CONSTITUTES SATISFACTION OF JUDGMENT.

III

INTEREST IS NOT PAYABLE WHEN THE DECISION IS SILENT AS TO THE PAYMENT THEREOF.

IV

SECTION 5, RULE 39, PARTICULARLY REFERS TO LEVY OF PROPERTY OF JUDGMENT DEBTOR AND DISPOSAL OR SALE THEREOF TO SATISFY JUDGMENT.

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

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

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

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

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

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

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

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

She filed her complaint in 1967.

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

It is now 1990.

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

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

In general, a payment, in order to be effective to discharge an obligation, must be made to the proper person. Article 1240 of the Civil Code provides:

Payment shall be made to the person in whose favor the obligation has been constituted, or his successor in interest, or any person authorized to receive it. (Emphasis supplied)

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

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

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

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

Did such payments extinguish the judgment debt?

Article 1249 of the Civil Code provides:

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

The delivery of promissory notes payable to order, or bills of exchange or other mercantile documents shall produce the effect of payment only when they have been cashed, or when through the fault of the creditor they have been impaired.

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

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

Since a negotiable instrument is only a substitute for money and not money, the delivery of such an instrument does not, by itself, operate as payment (See. 189, Act 2031 on Negs. Insts.; Art. 1249, Civil Code; Bryan Landon Co. v. American Bank, 7 Phil. 255; Tan Sunco v. Santos, 9 Phil. 44; 21 R.C.L. 60, 61). A check, whether a manager's check or ordinary cheek, is not legal tender, and an offer of a check in payment of a debt is not a valid tender of payment and may be refused receipt by the obligee or creditor. Mere delivery of checks does not discharge the obligation under a judgment. The obligation is not extinguished and remains suspended until the payment by commercial document is actually realized (Art. 1249, Civil Code, par. 3).

If bouncing checks had been issued in the name of Amelia Tan and not the Sheriff's, there would have been no payment. After dishonor of the checks, Ms. Tan could have run after other properties of PAL. The theory is that she has received no value for what had been awarded her. Because the checks were drawn in the name of Emilio Z. Reyes, neither has she received anything. The same rule should apply.

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

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

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

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

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

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

As explained and held by the respondent court:

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

As between two innocent persons, one of whom must suffer the consequence of a breach of trust, the one who made it possible by his act of confidence must bear the loss. (Blondeau, et al. v. Nano, et al., L-41377, July 26, 1935, 61 Phil. 625)

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

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

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

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

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

the respondent court held:

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

xxx xxx xxx

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

Strictly speaking execution cannot be equated with satisfaction of a judgment. Under unusual circumstances as those obtaining in this petition, the distinction comes out clearly.

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

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

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

SO ORDERED.

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





Separate Opinions





NARVASA, J., dissenting:

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

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

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

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

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

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

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

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

Now, obviously, the sheriff s sale extinguishes the liability of the judgment debtor either in fun, if the price paid by the highest bidder is equal to, or more than the amount of the judgment or pro tanto if the price fetched at the sale be less. Such extinction is not in any way dependent upon the judgment creditor's receiving the amount realized, so that the conversion or embezzlement of the proceeds of the sale by the sheriff does not revive the judgment debt or render the judgment creditor liable anew therefor.

So, also, the taking by the sheriff of, say, personal property from the judgment debtor for delivery to the judgment creditor, in fulfillment of the verdict against him, extinguishes the debtor's liability; and the conversion of said property by the sheriff, does not make said debtor responsible for replacing the property or paying the value thereof.

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

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

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

There is no question that the checks came into the sheriffs possession in his official capacity. The court may require of the judgment debtor, in complying with the judgment, no further burden than his vigilance in ensuring that the person he is paying money or delivering property to is a person authorized by the court to receive it. Beyond this, further expectations become unreasonable. To my mind, a proposal that would make the judgment debtor unqualifiedly the insurer of the judgment creditor's entitlement to the judgment amount which is really what this case is all about begs the question.

That the checks were made out in the sheriffs name (a practice, by the way, of long and common acceptance) is of little consequence if juxtaposed with the extent of the authority explicitly granted him by law as the officer entrusted with the power to execute and implement court judgments. The sheriffs requirement that the checks in payment of the judgment debt be issued in his name was simply an assertion of that authority; and PAL's compliance cannot in the premises be faulted merely because of the sheriffs subsequent malfeasance in absconding with the payment instead of turning it over to the judgment creditor.

If payment had been in cash, no question about its validity or of the authority and duty of the sheriff to accept it in settlement of PAL's judgment obligation would even have arisen. Simply because it was made by checks issued in the sheriff s name does not warrant reaching any different conclusion.

As payment to the court discharges the judgment debtor from his responsibility on the judgment, so too must payment to the person designated by such court and authorized to act in its behalf, operate to produce the same effect.

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

ACCORDINGLY, I vote to grant the petition.

Melencio-Herrera, Gancayco, J., concurs.



FELICIANO, J., dissenting:

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

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

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

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

The receipt of money due on a judgment by an officer authorized by law to accept it will satisfy the debt. (Citations omitted)

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

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

It is argued that if PAL had paid in cash to Sheriff Reyes, there would have been payment in full legal contemplation. The reasoning is logical but is it valid and proper?

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

And second, payment in cash always carries with it certain cautions. Nobody hands over big amounts of cash in a careless and inane manner. Mature thought is given to the possibility of the cash being lost, of the bearer being waylaid or running off with what he is carrying for another. Payment in checks is precisely intended to avoid the possibility of the money going to the wrong party....

Payment in money or cash to the implementing officer may be deemed absolute payment of the judgment debt but the court has never, in the least bit, suggested that judgment debtors should settle their obligations by turning over huge amounts of cash or legal tender to sheriffs and other executing officers. ... (Emphasis in the original) (Majority opinion, pp. 12-13)

There is no dispute with the suggestion apparently made that maximum safety is secured where the judgment debtor delivers to the sheriff not cash but a check made out, not in the name of the sheriff, but in the judgment creditor's name. The fundamental point that must be made, however, is that under our law only cash is legal tender and that the sheriff can be compelled to accept only cash and not checks, even if made out to the name of the judgment creditor. 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.

Did the situation change by PAL's delivery of its two (2) checks totalling P30,000.00 drawn against its bank account, payable to Sheriff Reyes, for account of the judgment rendered against PAL? I do not think so, because when Sheriff Reyes encashed the checks, the encashment was in fact a payment by PAL to Amelia Tan through Sheriff Reyes, an officer of the law authorized to receive payment, and such payment discharged PAL'S obligation under the executed judgment.

If the PAL cheeks in question had not been encashed by Sheriff Reyes, there would be no payment by PAL and, consequently no discharge or satisfaction of its judgment obligation. But the checks had been encashed by Sheriff Reyes giving rise to a situation as if PAL had paid Sheriff Reyes in cash, i.e., Philippine currency. This, we repeat, is payment, in legal contemplation, on the part of PAL and this payment legally discharged PAL from its judgment obligation to the judgment creditor. To be sure, the same encashment by Sheriff Reyes of PAL's checks delivered to him in his official capacity as Sheriff, imposed an obligation on Sheriff Reyes to pay and deliver the proceeds of the encashment to Amelia Tan who is deemed to have acquired a cause of action against Sheriff Reyes for his failure to deliver to her the proceeds of the encashment. As held:

Payment of a judgment, to operate as a release or satisfaction, even pro tanto must be made to the plaintiff or to some person authorized by him, or by law, to receive it. The payment of money to the sheriff having an execution satisfies it, and, if the plaintiff fails to receive it, his only remedy is against the officer (Henderson v. Planters' and Merchants Bank, 59 SO 493, 178 Ala. 420).

Payment of an execution satisfies it without regard to whether the officer pays it over to the creditor or misapplies it (340, 33 C.J.S. 644, citing Elliot v. Higgins, 83 N.C. 459). If defendant consents to the Sheriff s misapplication of the money, however, defendant is estopped to claim that the debt is satisfied (340, 33 C.J.S. 644, citing Heptinstall v. Medlin 83 N.C. 16).

The above rulings find even more cogent application in the case at bar because, as contended by petitioner PAL (not denied by private respondent), when Sheriff Reyes served the writ of execution on PAL, he (Reyes) was accompanied by private respondent's counsel. Prudence dictated that when PAL delivered to Sheriff Reyes the two (2) questioned checks (payable to Sheriff Reyes), private respondent's counsel should have insisted on their immediate encashment by the Sheriff with the drawee bank in order to promptly get hold of the amount belonging to his client, the judgment creditor.

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

Melencio-Herrera, Gancayco, Sarmiento, Cortes, JJ., concurs.





Separate Opinions



NARVASA, J., dissenting:

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

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

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

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

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

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

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

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

Now, obviously, the sheriff s sale extinguishes the liability of the judgment debtor either in fun, if the price paid by the highest bidder is equal to, or more than the amount of the judgment or pro tanto if the price fetched at the sale be less. Such extinction is not in any way dependent upon the judgment creditor's receiving the amount realized, so that the conversion or embezzlement of the proceeds of the sale by the sheriff does not revive the judgment debt or render the judgment creditor liable anew therefor.

So, also, the taking by the sheriff of, say, personal property from the judgment debtor for delivery to the judgment creditor, in fulfillment of the verdict against him, extinguishes the debtor's liability; and the conversion of said property by the sheriff, does not make said debtor responsible for replacing the property or paying the value thereof.

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

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

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

There is no question that the checks came into the sheriffs possession in his official capacity. The court may require of the judgment debtor, in complying with the judgment, no further burden than his vigilance in ensuring that the person he is paying money or delivering property to is a person authorized by the court to receive it. Beyond this, further expectations become unreasonable. To my mind, a proposal that would make the judgment debtor unqualifiedly the insurer of the judgment creditor's entitlement to the judgment amount which is really what this case is all about-begs the question.

That the checks were made out in the sheriffs name (a practice, by the way, of long and common acceptance) is of little consequence if juxtaposed with the extent of the authority explicitly granted him by law as the officer entrusted with the power to execute and implement court judgments. The sheriffs requirement that the checks in payment of the judgment debt be issued in his name was simply an assertion of that authority; and PAL's compliance cannot in the premises be faulted merely because of the sheriffs subsequent malfeasance in absconding with the payment instead of turning it over to the judgment creditor.

If payment had been in cash, no question about its validity or of the authority and duty of the sheriff to accept it in settlement of PAL's judgment obligation would even have arisen. Simply because it was made by checks issued in the sheriff s name does not warrant reaching any different conclusion.

As payment to the court discharges the judgment debtor from his responsibility on the judgment, so too must payment to the person designated by such court and authorized to act in its behalf, operate to produce the same effect.

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

ACCORDINGLY, I vote to grant the petition.

Melencio-Herrera, Gancayco, J., concurs.



FELICIANO, J., dissenting:

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

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

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

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

The receipt of money due on a judgment by an officer authorized by law to accept it will satisfy the debt. (Citations omitted)

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

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

It is argued that if PAL had paid in cash to Sheriff Reyes, there would have been payment in full legal contemplation. The reasoning is logical but is it valid and proper?

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

And second, payment in cash always carries with it certain cautions. Nobody hands over big amounts of cash in a careless and inane manner. Mature thought is given to the possibility of the cash being lost, of the bearer being waylaid or running off with what he is carrying for another. Payment in checks is precisely intended to avoid the possibility of the money going to the wrong party....

Payment in money or cash to the implementing officer may be deemed absolute payment of the judgment debt but the court has never, in the least bit, suggested that judgment debtors should settle their obligations by turning over huge amounts of cash or legal tender to sheriffs and other executing officers. ... (Emphasis in the original) (Majority opinion, pp. 12-13)

There is no dispute with the suggestion apparently made that maximum safety is secured where the judgment debtor delivers to the sheriff not cash but a check made out, not in the name of the sheriff, but in the judgment creditor's name. The fundamental point that must be made, however, is that under our law only cash is legal tender and that the sheriff can be compelled to accept only cash and not checks, even if made out to the name of the judgment creditor. 1 The sheriff could have quite lawfully required PAL to deliver to him only cash, i.e., Philippine currency. If the sheriff had done so, and if PAL had complied with such a requirement, as it would have had to, one would have to agree that legal payment must be deemed to have been effected. It requires no particularly acute mind to note that a dishonest sheriff could easily convert the money and abscond. The fact that the sheriff in the instant case required, not cash to be delivered to him, but rather a check made out in his name, does not change the legal situation. PAL did 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.

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.

Jurisprudence: G.R. No. 153898 October 18, 2007

FIRST DIVISION

 Mr. WEE SION BEN, President of Best Emporium, and BEST EMPORIUM, Pagadian City v. SEMEXCO/ZEST-O MARKETING CORPORATION, represented by Miss SYLVIA R. OCER, Attorney-in-fact   

G.R. No. 153898   October 18, 2007

x-----------------------------------------------------------------------------------------x

DECISION



SANDOVAL-GUTIERREZ, J.:





Before us is the instant Petition for Review on Certiorari under             Rule 45 of the 1997 Rules of Civil Procedure, as amended, questioning the Decision[1] dated February 2, 2002 and Resolution dated May 2, 2002 of the Court of Appeals in CA-G.R. CV No. 58421.

Best Emporium (in Pagadian City) and its president, Wee Sion Ben, petitioners, purchased fruit juices from SEMEXCO/ZEST-O Marketing Corporation, respondent, for the period from January to August 1995.   Respondent issued petitioners a Charge Invoice in the amount of P104,277.80 which bears this term/condition:

Note: Please make all checks payable to SEMEXCO Marketing Corporation only.[2]



In payment for the fruit juices, petitioners issued Metro Bank Pagadian City Branch Check No. PYD 1090770187 dated August 15, 1995 in the sum of P104,277.80 payable to cash.   Maloney Sorolla, respondent corporation’s sales representative, received the check.   Sorolla encashed the check but did not remit the money to herein respondent.

Upon learning of the delivery of the check to Sorolla, Nelson Azarcon, district sales manager of respondent corporation, inquired from petitioner Wee Sion Ben why he issued a “pay to cash” check when the Charge Invoice states that all payments must be made payable to the order of respondent corporation.   Thereupon, petitioner Wee Sion Ben issued Metro Bank Pagadian City Branch Check No. PYD 1090770320 dated September 1, 1995 to replace the “pay to cash” check.   However, when presented for payment, respondent was informed by the drawee bank that petitioner Wee Sion Ben directed it to “stop payment” or not to pay the new check.

Consequently, respondent made oral and written demands upon petitioners[3] to pay P104,277.80, but to no avail.   

Respondent thus filed with the Regional Trial Court, Branch 35, Ozamis City a complaint for sum of money, docketed as Civil Case No. 96-34.    On April 30, 1997, the trial court rendered its Decision finding that
petitioners’ obligation had been extinguished when they delivered the “pay to cash” check to respondent through Sorolla.  The trial court then dismissed both the complaint and the counterclaim.[4]

On appeal by respondent, the Court of Appeals rendered a Decision affirming with modification the trial court’s judgment, thus:

Wherefore, premises considered, the appeal is granted; and the assailed 30 April 1997 Decision of the court a quo is hereby AFFIRMED with MODIFICATION, as follows:

1.     Defendants-appellees are jointly and severally liable to pay the sum of P104,277.80 to plaintiffs-appellants plus 12% interest per annum from September 1995 until fully paid;

2.     As stipulated in the Charge Invoice, defendants-appellees are hereby ordered to pay 25% of the total monetary award to plaintiffs-appellants.

3.     The rest of the court a quo’s dispositions are hereby affirmed.



Petitioners filed a motion for reconsideration but it was denied by the appellate court in its Resolution dated May 2, 2002.

Hence, the present petition.

The issue for our resolution is whether petitioner Wee Sion Ben’s issuance of the check payable to cash delivered and received by Sorolla constitutes a valid payment of petitioners’ obligation to respondent.

As mentioned earlier, the Charge Invoice issued by respondent to petitioners clearly states that they shall “make all checks payable to SEMEXCO Marketing Corporation only.”

Evidently, both parties in their business transaction are bound by this term or condition. 

Petitioners contend that since the Charge Invoice is a contract of adhesion,[5] they are not obliged to comply with its term or condition.   Petitioners’ contention lacks merit.   We have repeatedly held that contracts of adhesion are as binding as ordinary contracts.[6]  Those who adhere to the contract are in reality free to reject it entirely and if they adhere, they give their consent.[7]

Clearly then, petitioners’ issuance of the “pay to cash” check is a clear violation on their part of the term or condition stipulated in the Charge Invoice.

Petitioners should have been wary in issuing such check.  Records show that it was Sorolla himself who requested them to issue the check payable to cash.  This should have warned them of the possible risk – that the check may not reach respondent.

At any rate, when petitioners realized they made a serious mistake in issuing the “pay to cash” check to Sorolla, they readily issued a second check payable to respondent corporation.   For reason they only know, petitioners directed the drawee bank to stop its payment.   Obviously, they admitted that they violated the condition in the Charge Invoice.    Hence, their obligation to pay the fruit juices delivered to them is not extinguished.



Article 1595(1) of the Civil Code provides:

Where, under a contract of sale, the ownership of the goods has passed to the buyer and he wrongfully neglects or refuses to pay for the goods according to the terms of the contract of sale, the seller may maintain an action against him for the price of the goods.







WHEREFORE, we DENY the petition and AFFIRM the assailed Decision and Resolution of the Court of Appeals in CA-G.R. CV No. 58421.

SO ORDERED.

Jurisprudence: G.R. No. 105836 March 7, 1994

SECOND DIVISION

G.R. No. 105836 March 7, 1994

SPOUSES GEORGE MORAN and LIBRADA P. MORAN, petitioners,
vs.
THE HON. COURT OF APPEALS and CITYTRUST BANKING CORPORATION, respondents.

Gonzales, Batiller, Bilog & Associates for petitioners.

Agcaoli & Associates for private respondent.



REGALADO, J.:

Petitioner spouses George and Librada Moran are the owners of the Wack-Wack Petron gasoline station located at Shaw Boulevard, corner Old Wack-Wack Road, Mandaluyong, Metro Manila. They regularly purchased bulk fuel and other related products from Petrophil Corporation on cash on delivery (COD) basis. Orders for bulk fuel and other related products were made by telephone and payments were effected by personal checks upon delivery. 1

Petitioners maintained three joint accounts, namely one current account (No. 37-00066-7) and two savings accounts, (Nos. 1037002387 and 1037001372) with the Shaw Boulevard branch of Citytrust Banking Corporation. As a special privilege to the Morans, whom it considered as valued clients, the bank allowed them to maintain a zero balance in their current account. Transfers from Saving Account No. 1037002387 to their current account could be made only with their prior authorization, but they gave written authority to Citytrust to automatically transfer funds from their Savings Account No. 1037001372 to their Current Account No. 37-00066-7 at any time whenever the funds in their current account were insufficient to meet withdrawals from said current account. Such arrangement for automatic transfer of funds was called a pre-authorized transfer (PAT) agreement. 2

The PAT letter-agreement entered into by the parties on March 19, 1982 contained the following provisions:

xxx xxx xxx

1. The transfer may be effected on the day following the overdrawing of the current account, but the check/s would be honored if the savings account has sufficient balance to cover the overdraft.

2. The regular charges on overdraft, and activity fees will be imposed by the Bank.

3. This is merely an accommodation on our part and we have the right, at all times and for any reason whatsoever, to refuse to effect transfer of funds at our sole and absolute option and discretion, reserving our right to terminate this arrangement at any time without written notice to you.

4. You hold CITYTRUST free and harmless for any and all omissions or oversight in executing this automatic transfer of funds; . . . 3

xxx xxx xxx

On December 12, 1983, petitioners, through Librada Moran, drew a check (Citytrust No. 041960) for P50,576.00 payable to Petrophil
Corporation. 4 The next day, December 13, 1983, petitioners, again through Librada Moran, issued another check (Citytrust No. 041962) in the amount of P56,090.00 in favor of the same corporation. 5 The total sum of the two checks was P106,666.00.

On December 14, 1983, Petrophil Corporation deposited the two aforementioned checks to its account with the Pandacan branch of the Philippine National Bank (PNB), the collecting bank. In turn, PNB, Pandacan branch presented them for clearing with the Philippine Clearing House Corporation in the afternoon of the same day. The records show that on December 14, 1983, Current Account No. 37-00066-7 had a zero balance, while Savings Account No. 1037001372 (covered by the PAT) had an available balance of
P26,104.30 6 and Savings Account No. 1037002387 had an available balance of P43,268.39. 7

At about ten o'clock in the morning of the following day, December 15, 1983, petitioner George Moran went to the bank, as was his regular practice, to personally oversee their daily transactions with the bank. He deposited in their Savings Account No. 1037002387 the amounts of P10,874.58 and P6,754.25, 8 and he likewise deposited in their Savings Account No. 1037001372 the amounts of P5,900.00, P35,100.00 and 30.00. 9 The amount of P40,000.00 was then transferred by him from Saving Account No. 1037002387 to their current account by means of a pro forma withdrawal form (a debit memorandum), which was provided by the bank, authorizing the latter to make the necessary transfer. At the same time, the amount of P66,666.00 was transferred from Savings Account No. 1037001372 to the same current account through the pre-authorized transfer (PAT) agreement. 10

Sometime on December 15 or 16, 1983 George Moran was informed by his wife Librada, that Petrophil refused to deliver their orders on a credit basis because the two checks they had previously issued were dishonored upon presentment for payment. Apparently, the bank dishonored the checks due to "insufficiency of funds." 11 The non-delivery of gasoline forced petitioners to temporarily stop business operations, allegedly causing them to suffer loss of earnings. In addition, Petrophil cancelled their credit accommodation, forcing them to pay for their purchases in cash. 12 George Moran, furious and upset, demanded an explanation from Raul Diaz, the branch manager. Failing to get a sufficient explanation, he talked to a certain Villareal, a bank officer, who allegedly told him that Amy Belen Ragodo, the customer service officer, had committed a "grave error". 13

On December 16 or 17, 1983, Diaz went to the Moran residence to get the signatures of the petitioners on an application for a manager's check so that the dishonored checks could be redeemed. Diaz then went to Petrophil to personally present the checks in payment for the two dishonored checks. 14

In a chance meeting around May or June, 1984, George Moran learned from one Constancio Magno, credit manager of Petrophil, that the latter received from Citytrust, through Diaz, a letter dated December 16, 1983, notifying them that the two aforementioned checks were "inadvertently dishonored . . . due to operational error." Said letter was received by Petrophil on January 4, 1984. 15

On July 24, 1984, or a little over six months after the incident, petitioners, through counsel, wrote Citytrust claiming that the bank's dishonor of the checks caused them besmirched business and personal reputation, shame and anxiety, hence they were contemplating the filing of the necessary legal actions unless the bank issued a certification clearing their name and paid them P1,000,000.00 as moral damages. 16

The bank did not act favorably on their demands, hence petitioners filed a complaint for damages on September 8, 1984, with the Regional Trial Court, Branch 159 at Pasig, Metro Manila, which was docketed therein as Civil Case No. 51549. In turn, Citytrust filed a counterclaim for damages, alleging that the case filed against it was unfounded and unjust.

After trial, a decision dated October 9, 1989 was rendered by the trial court dismissing both the complaint and the counterclaim. 17 On appeal, the Court of Appeals rendered judgment in CA-G.R. CV No. 25009 on October 9, 1989 affirming the decision of the trial court. 18

We start some basic and accepted rules, statutory and doctrinal. A check is a bill of exchange drawn on a bank payable on demand. 19 Thus, a check is a written order addressed to a bank or persons carrying on the business of banking, by a party having money in their hands, requesting them to pay on presentment, to a person named therein or to bearer or order, a named sum of money. 20

Fixed savings and current deposits of money in banks and similar institutions shall be governed by the provisions concerning simple loan. 21 In other words, the relationship between the bank and the depositor is that of a debtor and creditor. 22 By virtue of the contract of deposit between the banker and its depositor, the banker agrees to pay checks drawn by the depositor provided that said depositor has money in the hands of the bank. 23

Hence, where the bank possesses funds of a depositor, it is bound to honor his checks to the extent of the amount of his deposits. The failure of a bank to pay the check of a merchant or a trader, when the deposit is sufficient, entitles the drawer to substantial damages without any proof of actual
damages. 24

Conversely, a bank is not liable for its refusal to pay a check on account of insufficient funds, notwithstanding the fact that a deposit may be made later in the day. 25 Before a bank depositor may maintain a suit to recover a specific amount from his bank, he must first show that he had on deposit sufficient funds to meet his demand. 26

The present action for damages accordingly hinges on the resolution of the inquiry as to whether or not petitioners had sufficient funds in their accounts when the bank dishonored the checks in question. In view of the factual findings of the two lower courts the correctness of which are challenged by what appear to be plausible, arguments, we feel that the same should properly be resolved by us. This would necessarily require us to inquire into both the savings and current accounts of petitioners in relation to the PAT arrangement.

On December 14, 1983, when PNB, Pandacan branch, presented the checks for collection, the available balance for Savings Account No. 1037001372 was P26,104.30 while Current Account No. 37-00066-7 expectedly had a zero balance. On December 15, 1983, at approximately ten o'clock in the morning, petitioners, through George Moran, learned that P66,666.00 from Saving Account No. 1037001372 was transferred to their current account. Another P40,000.00 was transferred from Saving Accounts No. 1037002387 to the current account. Considering that the transfers were by then sufficient to cover the two checks, it is asserted by petitioners that such fact should have prevented the dishonor of the checks. It appears, however, that it was not so.

As explained by respondent court in its decision, Gerard E. Rionisto, head of the centralized clearing unit of Citytrust, detailed on the witness stand the standard clearing procedure adopted by respondent bank and the Philippine Clearing House Corporation, to wit:.

Q: Let me again re-phase the question. Most of (sic) these two checks issued by Mrs. Librada Moran under the accounts of the plaintiffs with Citytrust Banking Corporation were drawn dated December 12, 1983 and December 13, 1983(and) these two (2) checks were made payable to Petrophil Corporation. On record, Petrophil Corporation presented these two (2) checks for clearing with PNB Pandacan Branch on December 14, 1983. Now in accordance with the bank, what would happen with these checks drawn with (sic) PNB on December 14, 1983?.

A: So these checks will now be presented by PNB with the Philippine Clearing House on December 14, and then the Philippine Clearing House will process it until midnight of December 14. Citytrust will send a clearing representative to the Philippine Clearing House at around 2:00 o'clock in the morning of December 15 and then get the checks. The checks will now be processed at the Citytrust Computer at around 3:00 o'clock in the morning of December 14 (sic)but it will be processed for balance of Citytrust as of December 14 because for one, we have not opened on December 15 at 3:00 o'clock. Under the clearing house rules, we are supposed to process it on the date it was presented for clearing. (tsn, September 9, 1988, pp. 9-10). 27

Considering the clearing process adopted, as explained in the aforequoted testimony, it is clear that the available balance on December 14, 1983 was used by the bank in determining whether or not there was sufficient cash deposited to fund the two checks, although what was stamped on the dorsal side of the two checks in question was "DAIF/12-15-83," since December 15, 1983 was the actual date when the checks were processed. As earlier stated, when petitioners' checks were dishonored due to insufficiency of funds, the available balance of Savings Account No. 1037001372, which was the subject of the PAT agreement, was not enough to cover either of the two checks. On December 14, 1983, when PNB, Pandacan branch presented the checks for collection, the available balance for Savings Account No. 1037001372, to repeat, was only P26,104.30 while Current Account No. 37-0006-7 had no available balance. It was only on December 15, 1983 at around ten o'clock in the morning that the necessary funds were deposited, which unfortunately was too late to prevent the dishonor of the checks.

Petitioners argue that public respondent, by relying heavily on Rionisto's testimony, failed to consider the fact that the witness himself admitted that he had no personal knowledge surrounding the dishonor of the two checks in question. Thus, although he knew the standard clearing procedure, it does not necessarily mean that the same procedure was adopted with regard to the two checks.

We do not agree. Section 3(q), Rule 131 of the Rules of Court provides a disputable presumption in law that the ordinary course of business has been followed. In the absence of a contrary showing, it is presumed that the acts in question were in conformity with the usual conduct of business. In the case at bar, petitioners failed to present countervailing evidence to rebut the presumption that the checks involved underwent the same regular process for clearing of checks followed by the bank since 1983.

Petitioner had no reason to complain, for they alone were at fault. A drawer must remember his responsibilities every time he issues a check. He must personally keep track of his available balance in the bank and not rely on the bank to notify him of the necessity to fund certain check she previously issued. A check, as distinguished from an ordinary bill of exchange, is supposed to be drawn against a previous deposit of funds for it is ordinarily intended for immediately payment. 28

Moreover, between the time of the issuance of said checks on December 12 and 13 and the time of their presentment on December 14, petitioners had, at the very least, twenty-four hours to replenish their balance in the bank.

As previously noted, it was only during business hours in the morning of December 15, 1983, that P66,666.00 was automatically transferred from Savings Account No. 1037001372 to Current Account No. 37-00066-7, and another P40,000.00 was transferred from Savings Account No. 1037002387 to the same current by a debit memorandum. Petitioners argue that if indeed the checks were dishonored in the early morning of December 15, 1983, the bank would not have automatically transferred P66,666.00 to said current account. They theorize that the checks having already been dishonored, there was no necessity to put into effect the pre-authorized transfer agreement.

That theory is incorrect. When the transfer from both savings accounts to the current account were made, they were done in the hope that the checks may be retrieved, thus preventing their dishonor. Unfortunately, respondent bank did not succeed in effectuating its good intentions. The transfers were made to preserve its relations with petitioners whom it knew were valued clients, hence it wanted to prevent the dishonor of their checks, if the same was at all possible. Although not admitting fault, it tried its best to make sure that the checks would not bounce.

Under similar circumstances, it was held in Whitman vs. First National Bank 29 that a bank performs its full duty where, upon the receipt of a check drawn against an account in which there are insufficient funds to pay it in full, it endeavors to induce the drawer to make good his account so that the check can be paid, and failing in this, it protests the check on the following morning and notifies its correspondent bank by the telegraph of the protest. It cannot, therefore, be held liable to the payee and holder of the check for not protesting it upon the day when it was received. In fact, the court added that the bank did more that it was required to do by making an effort to induce the drawer to deposit sufficient money to make the check good, and by notifying its correspondent of the dishonor of the check by telegram.

Petitioners maintain that at the time the checks were dishonored, they had already deposited sufficient funds to cover said checks. To prove their point, petitioners quoted in their petition the following testimony of said witness Rionisto, to wit:

Q: Now according to you, you would receive the checks from (being deposited to) the collecting bank which in this particular example was the Pandacan Branch of PNB which in turn will deliver it to the Philippine Clearing House and the Philippine Clearing House will deliver it to your office around 12:00 o'clock of December . . . ?

A: Around 2:00 o'clock of December 15. We sent a clearing representative.

Q: And the checks will be processed in accordance with the balance available as of December 14?

A: Yes, sir.

Q: And naturally you will place there "drawn against insufficient funds, December 14, 1983"?

A: Yes, sir.

Q: Are you sure about that?

A: Yes, sir . . . (tsn, September 9, 1988, p. 14) 30

Obviously witness Rionisto was merely confused as to the dates (December 14 and 15) because it did not jibe with his previous testimony, wherein he categorically stated that "the checks will now be processed as the Citytrust Computer at around 3:00 in the morning of December 14 (sic) but it will be processed for balance of Citytrust as of December 14 because for one, we have not opened on December 15 at 3:00 o'clock. Under the clearing house rules, we are supposed to process it on the date it was presented for
clearing." 31 Analyzing the procedure he had previously explained, and analyzing his testimony in its entirety and not in truncated portions, it would logically and ineluctably appear that he actually meant December 15, and not December 14.

In the early morning of every business day, prior to banking hours, the various branches of Citytrust would receive a computer printout called the "rejected transactions" report from the head office. The report contains, among others, a listing of "checks to be funded." When Citytrust, Shaw Boulevard branch, received said report in the early morning of December 15, 1983, the two checks involved were included in the "checks to be funded." That report was used by the bank as its basis in dishonoring the two checks in question. Petitioner contends that the bank erred when it did so because on previous occasions, the report was merely used by the bank as a basis for determining whether or not it was necessary to notify them of the need to deposit certain amounts in their accounts.

Amy Belen Rogado, a bank employee, testified that she would normally copy the details stated in the report and transfer in on a "pink slip." These pink slips were then given to George Moran. In turn, George Moran testified that he would deposit the necessary funds stated in the pink slips. As a matter of fact, so petitioner asseverated, not a single check written on the notices was ever dishonored after he had funded said checks with the bank. Thus, petitioner argues, the checks were not yet dishonored after the bank received the report in the early morning of December 15, 1983.

Said argument does not persuade. If ever petitioners on previous occasions were given notices every time a check was presented for clearing and payment and there were no adequate funds in their accounts, these were, at most, mere accommodations on the part of respondent bank. It was not a requirement or a general banking practice, hence non-compliance therewith could not lay the bank open to blame or rebuke. Legally, the bank had all the right to dishonor the checks because there were no sufficient funds to speak of in the first place. If the demand is by check, a drawer must have to his credit enough to cover the demand. If his credit with the bank is less than the amount on the face of the check, the bank may lawfully refuse payment. 32

Pursuing this matter further, the bank could also not be faulted for not accepting either of the two checks. The first check issued was in the amount of P50,576.00, while the second one was for P56,090.00. Savings Account No. 1307001372 then had a balance of only P26,104.30. This being the case, Citytrust could not be expected to accept for payment either one of the two checks nor partially honor one check.

A bank is under no obligation to make part payment on a check, up to only the amount of the drawer's funds, where the check is drawn for an amount larger than what the drawer has on deposit. Such a practice of paying checks in part has never existed. Upon partial payment, the check holder could not be called upon to surrender the check, and the bank would be without a voucher affording a certain means of showing the payment. The rule is based on commercial convenience, and any rule that would work such manifest inconvenience should not be recognized. A check is intended not only to transfer a right to the amount named in it, but to serve the further purpose of affording evidence for the bank of the payment of such amount when the check is taken up. 33

On the other hand, assuming arguendo that Savings Account No. 1037002387, which is not covered by a pre-arranged automatic transfer agreement, had enough amount deposited to cover both checks (which is not so in this case), the bank still had no obligation to honor said checks as there was then no authority given to it to make the transfer of funds. Where a depositor has two accounts with a bank, an open account and a savings account, and draws a check upon the open account for more money than the account contains, the bank may rightfully refuse to pay the check, and is under no duty to make up the deficiency from the savings account. 34

We are agree with respondent Court of Appeals in its assessment and interpretation of the nature of the letter of Citytrust to Petrophil, dated December 16, 1983. As aptly and correctly stated by said court, ". . . the letter is not an admission of liability as it was written merely to maintain the goodwill and continued patronage of plaintiff-appellants. (This) cannot be characterized as baseless, considering the totality of the circumstances surrounding its writing." 35

In the present case, the actions taken by the bank after the incident clearly show that there was neither malice nor bad faith, but rather a clear intent to mollify an obviously agitated client. Raul Diaz, the branch manager, even went for this purpose to the Moran residence to facilitate their application for a manager's check. Later, he went to the Petrophil Corporation to personally redeem the checks. Still later, the letter was sent by respondent bank to Petrophil explaining that the dishonor of the checks was due to "operational error." However, we reiterate, it would be a mistake to construe that letter as an admission of guilt on the part of the bank. It knew that it was confronted with a client who obviously was not willing to admit any fault on his part, although the facts show otherwise. Thus, respondent bank ran the risk of losing the business of an important and influential member of the financial community if it did not do anything to assuage the feelings of petitioners.

It will be recalled that the credit standing of the Morans with Petrophil Corporation was involved, which fact, more than anything, displeased them, to say the least. On demand of petitioners that their names be cleared, the bank considered it more prudent to send the letter. It never realized that it would thereafter be used by petitioners as one of the bases of their legal action. It will be noted that there was no reason for the bank to send the letter to Petrophil Corporation since the latter was not a client nor was it demanding any explanation. Clearly, therefore, the letter was merely intended to accommodate the request of the Morans and was part of the series of damage-control measures taken by the bank to placate petitioners.

Respondent Court of Appeals perceptively observed that "all these somehow pacified plaintiffs-appellants (herein petitioners) for they did not thereafter take immediate punitive action against the defendant-appellee (herein private respondent). As pointed out by the court a quo, it took plaintiffs-appellants about six (6) months after the dishonor of the checks to demand that defendant-appellee pay them P1,000,000.00 as damages. At that time, plaintiffs-appellants had discovered the letter of Mr. Diaz attributing the dishonor of their checks to 'operational error'. The attempt to unduly ride on the letter of Mr. Diaz speaks for itself." 36

On the above premises which irresistibly commend themselves to our acceptance, we find no cogent and sufficient to award actual, moral, or exemplary damages to petitioners. Although we take judicial notice of the fact that there is a fiduciary relationship between a bank and its depositors, as well as the extent of diligence expected of it in handling the accounts entrusted to its care, 37 the bank may not be held responsible for such damages in the absence of fraud, bad faith, malice, or wanton attitude. 38

WHEREFORE, finding no reversible error in the judgment appealed from, the same is hereby AFFIRMED, with costs against petitioners.

SO ORDERED.

Narvasa, C.J., Padilla, Nocon and Puno, JJ., concur.