Facts:

Sima Wei acquired a loan from Development Bank of Rizal. He executed and delivered to the former a promissory note, engaging to pay the petitioner Bank or order the amount of P1,820,000.00 on or before June 24, 1983 with interest at 32% per annum.

Sima Wei made partial payments on the note, leaving a balance of P1,032,450.02. On November 18, 1983, Sima Wei issued two crossed checks payable to petitioner Bank drawn against China Banking Corporation, bearing respectively the serial numbers 384934, for the amount of P550,000.00 and 384935, for the amount of P500K. The said checks were allegedly issued in full settlement of the drawer’s account evidenced by the promissory note.

These two checks were not delivered to the Development Bank. For reasons not shown, these checks came into the possession of respondent Lee Kian Huat, who deposited the checks without the Development’s indorsement (forged or otherwise) to the account of respondent Plastic Corporation, at the Balintawak branch, Caloocan City, of the Producers Bank. The Branch Manager of the Balintawak branch of Producers Bank, relying on the assurance of respondent Samson Tung, President of Plastic Corporation, that the transaction was legal and regular, instructed the cashier of Producers Bank to accept the checks for deposit and to credit them to the account of said Plastic Corporation, inspite of the fact that the checks were crossed and payable to petitioner Bank and bore no indorsement of the latter. Hence, Development filed the complaint for sum of money against Wei and/or Kian Huat, Uy, Tung, Plastic Corporation and the Producers Bank.

Bank alleged that its cause of action was not based on collecting the sum of money evidenced by the negotiable instruments stated but on quasi-delict — a claim for damages on the ground of fraudulent acts and evident bad faith of the alternative respondents.

Issue: WON Development Bank has a cause of action against the respondents?

Held:

No. Unless respondent Sima Wei proves that she has been relieved from liability on the promissory note by some other cause, petitioner Bank has a right of action against her for the balance due thereon.

The normal parties to a check are the drawer, the payee and the drawee bank. Courts have long recognized the business custom of using printed checks where blanks are provided for the date of issuance, the name of the payee, the amount payable and the drawer’s signature. All the drawer has to do when he wishes to issue a check is to properly fill up the blanks and sign it. However, the mere fact that he has done these does not give rise to any liability on his part, until and unless the check is delivered to the payee or his representative.

A negotiable instrument, of which a check is, is not only a written evidence of a contract right but is also a species of property. Just as a deed to a piece of land must be delivered in order to convey title to the grantee, so must a negotiable instrument be delivered to the payee in order to evidence its existence as a binding contract.

Thus, the payee of a negotiable instrument acquires no interest with respect thereto until its delivery to him. Delivery of an instrument means transfer of possession, actual or constructive, from one person to another. Without the initial delivery of the instrument from the drawer to the payee, there can be no liability on the instrument. Moreover, such delivery must be intended to give effect to the instrument. Without the delivery of said checks to petitioner-payee, the former did not acquire any right or interest therein and cannot therefore assert any cause of action, founded on said checks, whether against the drawer Sima Wei or against the Producers Bank or any of the other respondents.

However, insofar as the other respondents are concerned, petitioner Bank has no privity with them. Since petitioner Bank never received the checks on which it based its action against said respondents, it never owned them (the checks) nor did it acquire any interest therein.

Facts:

Spouses Pacheco are engaged in the construction business. Due to financial difficulties arising from the repeated delays in the payment of their receivables for the construction projects from the DPWH, petitioners were constrained to obtain a loan of P10,000.00 from Mrs. Vicencio. Vicencio acceded. Instead of merely requiring a note of indebtedness, however, her husband Mr. Vicencio required petitioners to issue an undated check as evidence of the loan which allegedly will not be presented to the bank. Despite being informed by petitioners that their bank account no longer had any funds, Mrs. Vicencio insisted that issue the check, which according to her was only a formality Vicencio also required Virginia’s husband to sign the check on the same understanding that the check is not to be encashed but merely intended as an evidence of indebtedness which cannot be negotiated.

Pacheco obtained another loan of P50,000.00 from Mrs. Vicencio. For the new loan, she also required Virginia to issue three (3) more checks in various amounts. With the payment of the previous debt, Virginia asked for the return of the first check but Vicencio told her that her filing clerk was absent. Vicencio told Virginia that they can no longer locate the folder containing that check.

When the remaining balance of P15,000.00 on the loans became due and demandable, petitioners were not able to pay despite demands to do so. On August 3, 1992, Vicencio went to petitioners’ residence to persuade Virginia to place the date “August 15, 1992″ on checks nos. 101756 and 101774, although said checks were respectively given undated to her. Despite being informed by petitioner Virginia that their account with RCBC had been closed as early as August 17, 1989, Mrs. Vicencio and her daughter insisted that she place a date on the checks allegedly so that it will become evidence of their indebtedness.

Pacheco was surprised to receive a demand letter from Mrs. Vicencio’s spouse informing them that the checks when presented for payment on August 25, 1992 were dishonored due to “Account Closed”. 2 informations for estafa were filed against Pacheco.

RTC convicted them and CA affirmed.

Issue: WON there was deception on the part of the Pacheco spouses?

Held:

No. A check has the character of negotiability and at the same time it constitutes an evidence of indebtedness. By mutual agreement of the parties, the negotiable character of a check may be waived and the instrument may be treated simply as proof of an obligation.

There cannot be deceit on the part of the obligor, petitioners herein, because they agreed with the obligee at the time of the issuance and postdating of the checks that the same shall not be encashed or presented to the banks. As per assurance of the lender, the checks are nothing but evidence of the loan or security thereof in lieu of and for the same purpose as a promissory note. By their own covenant, therefore, the checks became mere evidence of indebtedness. It has been ruled that a drawer who issues a check as security or evidence of investment is not liable for estafa.

Vicencio could not have been deceived nor defrauded by petitioners in order to obtain the loans because she was informed that they no longer have funds in their RCBC accounts. With the assurance that the check will only stand as a firm evidence of indebtedness, Virginia placed a date on the check. Under these circumstances, Mrs. Vicencio cannot claim that she was deceived or defrauded by petitioners in obtaining the loan. In the absence of the essential element of deceit, no estafa was committed by petitioners.

Moreover, a check must be presented within a reasonable time from issue. By current banking practice, a check becomes stale after more than six (6) months. In fact a check long overdue for more than two and one-half years is considered stale. In this case, the checks were issued more than three years prior to their presentment.

It is clear that the checks were not intended for encashment with the bank, but were delivered as mere security for the payment of the loan and under an agreement that the checks would be redeemed with cash as they fell due. Hence, the checks were not intended by the parties to be modes of payment but only as promissory notes. Since complainant and his wife were well aware of that fact, they cannot now complain there was deception on the part of petitioners. Awareness by the complainant of the fictitious nature of the pretense cannot give rise to estafa by means of deceit. When the payee was informed by the by the drawer that the checks are not covered by adequate funds it does not give rise to bad faith or estafa.

Facts:

Villapaz issued a Philippine Bank of Communications (PBCom) crossed check in the amount of P250,000.00, payable to the order of petitioner Tony Tan. On even date, the check was deposited at the drawee bank, PBCom Davao City branch at Monteverde Avenue, to the account of petitioner Antonio Tan also at said bank. Tan failed to settle the same, and despite repeated demands, petitioners never did.

Villapaz filed before RTC Digos a Complaint for sum of money against Tan alleging that Tan repaired to his home and obtained a loan of P250K, hence his issuance of the February 6, 1992 PBCom crossed check which loan was to be settled interest-free in six (6) months. On the maturity date of the loan, Tan failed to settle the same.

Tan’s defense: (1) He denied going to Villapaz’s home. The check was issued by Villapaz in Davao City on February 6, 1992 in exchange for equivalent cash and that they never received from respondent any demand for payment. (2) A contract of loan must be in writing as in fact the New Civil Code provides that to be enforceable ‘contracts where the amount involved exceed[s] P500.00 must appear in writing even a private one. (3) Mere encashment of the check is not a contractual transaction such as a sale or a loan which ordinarily requires a receipt and that explains why they did not issue a receipt when they encashed the check of respondent. (4) He has a P950K account in a bank, bakit pa daw siya mangungutang kay Villapaz?!

According to Tan, Villapaz went to his place of business to encash his check of P250K, so he asked his wife to bring P250K cash and give it in exchange of the check.

Villapaz’s contention: (1) No memorandum in writing of the transaction was executed because he and they are ‘kumpadres’.

RTC dismissed the case but credited damages. CA reverse and found for Villapaz. According to CA, the existence of a contract of loan cannot be denied merely because it is not reduced in writing. Requirement under Art 1358 is only for convenience, not for validity.

Issue: WON the transaction in dispute was a contract of loan and not a mere matter of check encashment?

Held:

Yes. At all events, a check, the entries of which are no doubt in writing, could prove a loan transaction.

Petitioner Antonio Tan’s foregoing tale hardly inspires credence. Villapaz did not have to encash his check from petitioners. PBCom Davao City, Monteverde branch where respondent maintained a current account could even be reached by foot from the Golden Harvest in just a few minutes. Respondent could just have gone there and drew cash from his current account via over the counter transaction. After all, his account had sufficient funds.

That petitioner Tan had an outstanding balance of more than P950Kin his account at PBCom Monteverde branch where he was later to deposit respondent’s check did not rule out petitioners’ securing a loan. It is pure naivete to believe that if a businessman has such an outstanding balance in his bank account, he would have no need to borrow a lesser amount.

Petitioners’ side of the case is incredible as it is inconsistent with the principles by which men similarly situated are governed, whereas respondent’s claim that the proceeds of the check, which were admittedly received by petitioners, represented a loan extended to petitioner Antonio Tan is credible, the preponderance of evidence inclines on respondent.

Facts:

Spouses Chua Chin and Chan Chi were the founders of three business enterprises[3] namely: Hagonoy Lumber, Capitol Sawmill Corporation, and Columbia Wood Industries. At the time of Chua Chin’s death, the net worth of Hagonoy Lumber was P415,487.20.
The heirs executed a Deed of Extra-Judicial Partition and Renunciation of Hereditary Rights in Favor of a Co-Heir, wherein the heirs settled their interest in Hagonoy Lumber as follows: one-half (1/2) thereof will pertain to the surviving spouse, Chan Chi, as her share in the conjugal partnership; and the other half will be divided among Chan Chi and the seven children in equal pro indiviso shares equivalent to P25K each. Chan Chi and the six children likewise agreed to voluntarily renounce and waive their shares over Hagonoy Lumber in favor of their co-heir, Chua Sioc Huan.

Concepcion Chua Gaw and her husband, Antonio Gaw, asked respondent, Suy Ben Chua, to lend them P200,000.00 which they will use for the construction of their house in Marilao, Bulacan. The parties agreed that the loan will be payable within six (6) months without interest. Chua issued in their favor China Banking Corporation Check No. 240810 for P200,000.00 which he delivered to the couple’s house in Marilao, Bulacan. Antonio Gaw later encashed the check.

Spouses Gaw failed to pay the amount they borrowed from respondent within the designated period. Chua sent the couple a demand letter requesting them to settle their obligation with the warning that he will be constrained to take the appropriate legal action if they fail to do so. Failing to heed his demand, Chua filed a Complaint for Sum of Money against the spouses Gaw with the RTC.

Defense of Gaw: Spouses Gaw contended that the P200,000.00 was not a loan but petitioner’s share in the profits of Hagonoy Lumber, one of her family’s businesses. According to the spouses, when they transferred residence to Marilao, Bulacan, petitioner asked respondent for an accounting, and payment of her share in the profits, of Capital Sawmills Corporation, Columbia Wood Industries Corporation, and Hagonoy Lumber. They claimed that respondent persuaded petitioner to temporarily forego her demand as it would offend their mother who still wanted to remain in control of the family businesses. To insure that she will defer her demand, respondent allegedly gave her P200,000.00 as her share in the profits of Hagonoy Lumber.

According to Chua, Gaw did not demand from him an accounting of Capitol Sawmills Corporation, Columbia Wood Industries, and Hagonoy Lumber. He asserted that the spouses Gaw, in fact, have no right whatsoever in these businesses that would entitle them to an accounting thereof. His sister, Chua Sioc Huan, became the sole owner of Hagonoy Lumber when the heirs executed the Deed of Partition on December 8, 1986. In turn, he became the sole owner of Hagonoy Lumber when he bought it from Chua Sioc Huan, as evidenced by the Deed of Sale.
RTC held in favour of respondent Chua. It noted that respondent personally issued Check No. 240810 to petitioner and her husband upon their request to lend them the aforesaid amount. The trial court concluded that the P200,000.00 was a loan advanced by the respondent from his own funds and not remunerations for services rendered to Hagonoy Lumber nor petitioner’s advance share in the profits of their parents’ businesses.
CA affirmed.
Issue: WON the P200 was a loan obligation and not profits from the lumber business which Gaw was entitled to?

Held:

Yes. RTC’s finding that the P200,000.00 was given to the petitioner and her husband as a loan is supported by the evidence on record. On the issue of whether the P200,000.00 was really a loan, it is well to remember that a check may be evidence of indebtedness. A check, the entries of which are in writing, could prove a loan transaction. It is pure naiveté to insist that an entrepreneur who has several sources of income and has access to considerable bank credit, no longer has any reason to borrow any amount.

The petitioner’s allegation that the P200,000.00 was advance on her share in the profits of Hagonoy Lumber is implausible. It is true that Hagonoy Lumber was originally owned by the parents of petitioner and respondent. However, on December 8, 1986, the heirs freely renounced and waived in favor of their sister Chua Sioc Huan all their hereditary shares and interest therein, as shown by the Deed of Partition which the petitioner herself signed. By virtue of this deed, Chua Sioc Huan became the sole owner and proprietor of Hagonoy Lumber. When Chua delivered the check for P200,000.00 to the petitioner on June 7, 1988, Chua Sioc Huan was already the sole owner of Hagonoy Lumber. At that time, both petitioner and respondent no longer had any interest in the business enterprise; neither had a right to demand a share in the profits of the business.

Even assuming, arguendo, that the check was an advance on the petitioner’s share in the profits of the business, it was highly unlikely that the respondent would deliver a check drawn against his personal, and not against the business enterprise’s account.

Facts:

Accused was charged of estafa under Article 315 (2) (d) of the Revised Penal Code. Accused pled not quilty and underwent trial.

The evidence for the prosecution shows that on September 21, 1990, accused opened savings and current account with Amanah Bank. In the morning of August 20, 1993, Marites Bo-ot brought the accused to the office of Carmelita V. Santos at Room 504 Pacific Place, Pearl Drive, Ortigas Center, Pasig City to borrow money. The accused asked for P50,000.00 to be paid not later than December 1993. He assured Santos that his receivables would come in by November 1993. He persuaded Santos to give the loan by issuing five (5) check, each in the sum of P10,000.00, postdated December 20, 1993 and by signing a promissory note. The promissory note was co-signed by Bo-ot. In the afternoon of the same date, the accused returned to Santos and borrowed an additional P50,000.00. Again, he issued five (5) checks, each worth P10,000.00 postdated December 20, 1993. He also signed a promissory note together with Bo-ot.

Later, Amanah Bank closed accused’s current account for lack of funds. Also on a different date, accused himself requested for the closing of his savings account. Santos did not present accused’s checks to the drawee bank on their due date upon the request of accused himself. Instead, the checks were presented on March 1, 1994 but were dishonored as accused’s accounts had been closed. Accused was informed that his checks had bounced. He promised to make good the checks. He failed to redeem his promise, hence, the case at bar.

He admitted the evidence of the prosecution but alleged that the postdated checks were issued a day or two after he signed the promissory notes. Obviously, he was relying on the defense that the checks were in payment of a pre-existing obligation.

RTC convicted him. According to him, the penalty of 27 years of reclusion perpetua is too harsh.

Issue: WON the checks issued by accused constituted fraud which led the private party to extend a loan to him?

Held:

Yes. Estafa, under Article 315, paragraph 2(d) of the Revised Penal Code, as amended by Republic Act. No. 4885, has the following elements: (1) postdating or issuance of a check in payment of an obligation contracted at the time the check was issued; (2) lack of sufficiency of funds to cover the check; and (3) damage to the payee thereof.

Santos is the best person who can testify on what induced her to lend P100,000.00 to the appellant. Santos categorically declared that it was the issuance of postdated checks which persuaded her to part with her money.

A look at the two promissory notes will show that they bear the date August 20, 1993 and they referred to the postdated checks issued by the appellant. There could be no reference to the postdated checks if they were issued a day or two after the loans. In this appeal, however, appellant offers the new thesis that since the checks were postdated December 1993, ergo, they were issued in payment of the P100,000.00 he got from Santos on August 20, 1993. The postdating of the checks to December 1993 simply means that on said date the checks would be properly funded. It does not mean that the checks should be deemed as issued only on December 1993.

The legislature was not thoughtless in imposing severe penalties for violation of par. 2(d) of Article 315 of the Revised Penal Code. The history of the law will show that the severe penalties were intended to stop the upsurge of swindling by issuance of bouncing checks. It was felt that unless aborted, this kind of estafa “. . . would erode the people’s confidence in the use of negotiable instruments as a medium of commercial transaction and consequently result in the retardation of trade and commerce and the undermining of the banking system of the country.”

NAMARCO and the FEDERATION entered into a Contract of Sale. NAMARCO was authorized to import the following items with the corresponding dollar value totalling $2,001,031.00. Among the goods covered by the Contract of Sale were 2,000 cartons of PK Chewing Gums, 1,000 cartons of Juicy Fruit Chewing Gums, 500 cartons of Adams Chicklets, 168 cartons of Blue Denims, and 138 bales of Khaki Twill.

To insure the payment of those goods by the FEDERATION, the NAMARCO accepted three domestic letters of credit.

FEDERATION received from the NAMARCO the 2,000 cartons of PK Chewing Gums, 1,000 cartons of Juicy Fruit Chewing Gums, and 500 cartons of Adams Chicklets, all with a total value of P277,357.91, under the condition that the cost thereof would be paid in cash through PNB Domestic L/C No. 600570; and on February 20, 1960, the FEDERATION received from the NAMARCO the 168 cartons of Blue Denims and 183 bales of Khaki Twill, with a total value of P135,891.82 and P197,804.12, respectively, under the condition that the cost thereof would be paid in cash through PNB Domestic L/C Nos. 600606 and 600586, respectively.

FEDERATION filed a complaint against the NAMARCO for specific performance and damages, alleging that after the NAMARCO had delivered a great portion of the goods listed in the Contract of Sale, it refused to deliver the other goods mentioned in the said contract. NAMARCO has refused and declined to accept the cash payments by the FEDERATION. According to NAMARCO, the Contract of Sale was not validly entered into by the NAMARCO and, therefore, it is not bound by the provisions thereof.

PNB informed NAMARCO that it could not negotiate and effect payment on the sight drafts drawn under PNB Domestic L/Cs as the requirements of the covering letters of credit had not been complied with. The common condition of the three letters of credit is that the sight drafts drawn on them must be duly accepted by the FEDERATION before they will be honored by the Philippine National Bank. But the said drafts were not presented to the FEDERATION for acceptance.

NAMARCO demanded from the FEDERATION the payment of the total amount of P611,053.35, but the latter failed and refused to pay the said amount. CFI Manila promulgated its decision ordering the NAMARCO to specifically perform its obligation in the Contract of Sale, by delivering to the FEDERATION the undelivered goods.

Issue: WON the mere delivery by the FEDERATION of the domestic letters of credit to NAMARCO operate to discharge the debt of the FEDERATION?

Held:

No. Mere delivery by the FEDERATION of the domestic letters of credit to NAMARCO did not operate to discharge the debt of the FEDERATION. As shown by the appealed judgment NAMARCO accepted the three letters of credit “to insure the payment of those goods by the FEDERATION.” It was given therefore as a mere guarantee for the payment of the merchandise.

The delivery of promissory notes payable to order, or bills of exchange or drafts or other mercantile document shall produce the effect of payment (1) only when realized, or (2) when by the fault of the creditor, the privileges inherent in their negotiable character have been impaired. (Art. 1249 New Civil Code.)

The clause of Article 1249 relative to the impairment of the negotiable character of the commercial paper by the fault of the creditor, is applicable only to instruments executed by third persons and delivered by the debtor to the creditor, and does not apply to instruments executed by the debtor himself and delivered to the creditor.

In the case at bar it is not even pretended that the negotiable character of the sight drafts was impaired as a result of the fault of NAMARCO. The fact that NAMARCO attempted to collect from the Philippine National Bank on the sight drafts on March 10, 1960, is of no material significance. As heretofore stated they were never taken, in the first instance as payment. There was no agreement that they should be accepted as payment. The mere fact that NAMARCO proceeded in good faith to try to collect payments thereon, did not amount to an appropriation by it of the amounts mentioned in the sight drafts so as to release its claims against the FEDERATION. A mere attempt to collect or enforce a bill or note from which no payment results is not such an appropriation of it as to discharge the debt.

Facts:

Sometime in June 1982, A.U. Valencia and Co., Inc. and Felix Peñarroyo, filed with the Regional Trial Court of Pasig, Branch 151, a complaint for specific performance against Myron C. Papa, in his capacity as administrator of the Testate Estate of one Angela M. Butte. The complaint alleged that Papa, acting as attorney-in-fact of Angela M. Butte, sold to Peñarroyo, through Valencia, a parcel of land.

Prior to the alleged sale, the said property had been mortgaged by her to the Associated Banking Corporation. After the alleged sale to Valencia and Penarroyo, but before the title to the subject property had been released, Butte passed away. Despite representations made by Valencia to the bank to release the title to the property sold to Peñarroyo, the bank refused to release it unless and until all the mortgaged properties of the late Butte were also redeemed.

In order to protect his rights and interests over the property, Peñarroyo caused the annotation on the title of an adverse claim.

Sometime in April 1977, that Valencia and Peñarroyo discovered that the mortgage rights of the bank had been assigned to Tomas L. Parpana, as special administrator of the Estate of Ramon Papa. Jr. Since then, Papa had been collecting monthly rentals in the amount of P800.00 from the tenants of the property, knowing that said property had already been sold to Valencia and Peñarroyo. Despite repeated demands from said respondents, Papa refused and failed to deliver the title to the property.

Valencia and Peñarroyo prayed that Papa be ordered to deliver to Peñarroyo the title to the subject property

RTC rendered a decision, allowing Papa to redeem from the Reyes spouses, who bought the land at a public auction because of tax delinquency and ordering Papa to execute a Deed of Absolute Sale in favor of Peñarroyo.

Papa’s defense: The sale was never “consummated” as he did not encash the check (in the amount of P40,000.00) given by Valencia and Peñarroyo in payment of the full purchase price of the subject lot. He maintained that what Valencia and Peñarroyo had actually paid was only the amount of P5,000.00 (in cash) as earnest money.

Issue: Was there valid payment although Papa failed to encash the check?

Held:

Yes. Valencia and Peñarroyo had given Papa the amounts of P5,000.00 in cash on 24 May 1973, and P40,000.00 in check on 15 June 1973, in payment of the purchase price of the subject lot. Papa himself admits having received said amounts, and having issued receipts therefor. Papa’s assertion that he never encashed the aforesaid check is not substantiated and is at odds with his statement in his answer that “he can no longer recall the transaction which is supposed to have happened 10 years ago.”

After more than 10 years from the payment in part by cash and in part by check, the presumption is that the check had been encashed. Granting that Papa had never encashed the check, his failure to do so for more than 10 years undoubtedly resulted in the impairment of the check through his unreasonable and unexplained delay.

While it is true that the delivery of a check produces the effect of payment only when it is cashed, pursuant to Article 1249 of the Civil Code, the rule is otherwise if the debtor is prejudiced by the creditor’s unreasonable delay in presentment. The acceptance of a check implies an undertaking of due diligence in presenting it for payment, and if he from whom it is received sustains loss by want of such diligence, it will be held to operate as actual payment of the debt or obligation for which it was given.

If no presentment is made at all, the drawer cannot be held liable irrespective of loss or injury unless presentment is otherwise excused. This is in harmony with Article 1249 of the Civil Code under which payment by way of check or other negotiable instrument is conditioned on its being cashed, except when through the fault of the creditor, the instrument is impaired. The payee of a check would be a creditor under this provision and if its non-payment is caused by his negligence, payment will be deemed effected and the obligation for which the check was given as conditional payment will be discharged.

Considering that Valencia and Peñarroyo had fulfilled their part of the contract of sale by delivering the payment of the purchase price, they, therefore, had the right to compel Papa to deliver to them the owner’s duplicate of TCT 28993 of Angela M. Butte and the peaceful possession and enjoyment of the lot in question.

Facts:

Cebu International Finance Corporation (CIFC), a quasi-banking institution, is engaged in money market operations.

On April 25, 1991, Vicente Alegre, invested with CIFC, P500,000.00 pesos, in cash. Petitioner issued a promissory note to mature on May 27, 1991 for P516,238.67 placement plus interest at twenty and a half (20.5%) percent for thirty-two (32) days.

On May 27, 1991, CIFC issued BPI Check No. 513397 for P514,390.94 in favor of Alegre as proceeds of his matured investment plus interest. The CHECK was drawn from petitioner’s current account number maintained with the BPI Makati City.

Alegre’s wife deposited the CHECK with RCBC Puerto Princesa, Palawan but it was dishonoured with the annotation, that the “Check (is) Subject of an Investigation.” Alegre notified CIFC of the dishonored CHECK and demanded, on several occasions, that he be paid in cash. Alegre, through counsel, made a formal demand for the payment of his money market placement. In turn, CIFC promised to replace the CHECK but required an impossible condition that the original must first be surrendered.

Hence, this case for recovery of sum of money. RTC ruled in favour of Alegre. CA affirmed.

Issue:
1. Was there valid payment to Alegre?
2. Was there a valid discharge of the check?

Held:

1. No. In the case at bar, the money market transaction between the petitioner and the private respondent is in the nature of a loan. The private respondent accepted the CHECK, instead of requiring payment in money. Yet, when he presented it to RCBC for encashment, as early as June 17, 1991, the same was dishonored by non-acceptance, with BPI’s annotation: “Check (is) subject of an investigation.” These facts were testified to by BPI’s manager. Under these circumstances, and after the notice of dishonor, the holder has an immediate right of recourse against the drawer, and consequently could immediately file an action for the recovery of the value of the check.

In a loan transaction, the obligation to pay a sum certain in money may be paid in money, which is the legal tender or, by the use of a check. A check is not a legal tender, and therefore cannot constitute valid tender of payment. 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 (citation omitted). A check, whether a manager’s check or ordinary check, is not legal tender, and an offer of a check in payment of a debt is not a valid tender of payment and may be refused receipt by the obligee or creditor. 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.)

2. No. When the bank deducted the amount of the CHECK from CIFC’s current account, this did not ipso facto operate as a discharge or payment of the instrument. Although the value of the CHECK was deducted from the funds of CIFC, it was not delivered to the payee, Vicente Alegre. Instead, BPI offset the amount against the losses it incurred from forgeries of CIFC checks, allegedly committed by Alegre. The confiscation of the value of the check was agreed upon by CIFC and BPI. This compromise agreement between CIFC and BPI cannot bind Alegre who was a non-party thereto. His money could not be the subject of an agreement between CIFC and BPI. Although Alegre’s money was in custody of the bank, the bank’s possession of it was not in the concept of an owner. BPI cannot validly appropriate the money as its own.

Facts:

Spouses Reynaldo and Victoria Royeca (respondents) executed and delivered to Toyota Shaw, Inc. a Promissory Note for P577,008.00 payable in 48 equal monthly installments of P12,021.00, with a maturity date of August 18, 1997. The Promissory Note provides for a penalty of 3% for every month or fraction of a month that an installment remains unpaid.
To secure the payment of said Promissory Note, respondents executed a Chattel Mortgage in favor of Toyota over a certain motor vehicle, a 1993 Toyota Corolla, with notice to respondents, executed a Deed of Assignment[5] transferring all its rights, title, and interest in the Chattel Mortgage to FEBTC.

Spouses failed to pay four monthly amortizations, so FEBTC sent a formal demand to respondents on March 14, 2000 asking for the payment thereof, plus penalty. The respondents refused to pay on the ground that they had already paid their obligation.

FEBTC filed a Complaint for Replevin and Damages against the respondents with the Metropolitan Trial Court (MeTC) of Manila praying for the delivery of the vehicle, with an alternative prayer for the payment of P48,084.00 plus interest and/or late payment charges at the rate of 36% per annum from May 18, 1997 until fully paid.
According to FEBTC, 2 of the 8 checks were dishonoured.

Defense of respondents: they delivered to the Auto Financing Department of FEBTC eight (8) postdated checks in different amounts totaling P97,281.78. They did not receive any notice from the drawee banks or from FEBTC that these checks were dishonored. Considering that the checks were issued 3 years ago, they believed in good faith that their obligation had already been fully paid.

MTC dismissed the case. RTC reversed and ordered respondents to pay. CA reinstated MTC decision.

Issue:
1. WON there was payment of the obligation?
2. Was there legal obligation of FEBTC to inform respondents of the check’s dishonour?
3. Was there legal obligation to return the dishonoured checks?

Held:

1. No, there was only partial payment. Settled is the rule that payment must be made in legal tender. A check is not legal tender and, therefore, cannot constitute a valid tender of payment.[23] 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. 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.

Respondents had to present proof, not only that they delivered the checks to the petitioner, but also that the checks were encashed. The respondents failed to do so. Had the checks been actually encashed, the respondents could have easily produced the cancelled checks as evidence to prove the same. Instead, they merely averred that they believed in good faith that the checks were encashed because they were not notified of the dishonor of the checks and three years had already lapsed since they issued the checks.

The obligation to prove that the checks were not dishonored, but were in fact encashed, fell upon the respondents who would benefit from such fact. That payment was effected through the eight checks was the respondents’ affirmative allegation that they had to establish with legal certainty. If the petitioner were seeking to enforce liability upon the check, the burden to prove that a notice of dishonor was properly given would have devolved upon it.[26] The fact is that the petitioner’s cause of action was based on the original obligation as evidenced by the Promissory Note and the Chattel Mortgage, and not on the checks issued in payment thereof.

2. No. FEBTC, as payee, did not have a legal obligation to inform the respondents of the dishonor of the checks. A notice of dishonor is required only to preserve the right of the payee to recover on the check. It preserves the liability of the drawer and the indorsers on the check. Otherwise, if the payee fails to give notice to them, they are discharged from their liability thereon, and the payee is precluded from enforcing payment on the check. The respondents, therefore, cannot fault the petitioner for not notifying them of the non-payment of the checks because whatever rights were transgressed by such omission belonged only to the petitioner.

3. Yes. Reasonable banking practice and prudence dictates that, when a check given to a creditor bank in payment of an obligation is dishonored, the bank should immediately return it to the debtor and demand its replacement or payment lest it causes any prejudice to the drawer.

Facts:

Marasigan, who is a lawyer by profession, was a complimentary member of BECC from February 1988 to February 1989 and was issued Credit Card No. 100-012-5534 with a credit limit of P3,000.00 and with a monthly billing every 27th of the month (Exh. N), subject to the terms and conditions stipulated in the contract (Exh. 1-b). His membership was renewed for another year and the credit limit was increased to P5,000.00.

Oftentimes he exceeded his credit limits but this was never taken against him by the defendant and even his mode of paying his monthly bills in check was tolerated. Their contractual relations went on smoothly until his statement of account for October 1989 amounting to P8,987.84 was not paid in due time. On November 28, 2989, defendant served plaintiff a letter by ordinary mail informing him of the temporary suspension of the privileges of his credit card and the inclusion of his account number in their Caution List. He was also told to refrain from further use of his credit card to avoid any inconvenience/embarrassment and that unless he settles his outstanding account with the defendant within 5 days from receipt of the letter, his membership will be permanently cancelled. There is no showing that the plaintiff received this letter before December 8, 1989.

Confidential that he had settled his account with the issuance of the postdated check, plaintiff invited some guests on December 8, 1989 and entertained them at Café Adriatico. When he presented his credit card to Café Adriatico for the bill amounting to P735.32, said card was dishonored. One of his guests, Mary Ellen Ringler, paid the bill by using her own credit card a Unibankard.

Marasigan filed a case for damages against the bank. RTC ruled for Marasigan’s damage claim but ordered him to pay his obligations.

Issues:
1. WON there was indeed an agreement or arrangement entered into between the parties wherein the Bank required Marasigan to issue a postdated check in the amount of P15K as payment of his overdue accounts, with the condition that his credit card will not be suspended?
2. Was the issuance of the check effective payment?
3. Was the bank in bad faith in cancelling Marasigan’s card?

Held:

1. No. We agree with the findings of the respondent court, that there was an arrangement between the parties, wherein the petitioner required the private respondent to issue a check worth P15,000.00 as payment for the latter’s billings. However we find that the private respondent was not able to comply with this obligation. Clearly the purpose of the arrangement between the parties on November 22, 1989, was for the immediate payment of the private respondent’s outstanding account, in order that his credit card would not be suspended.

2. No. Settled is the doctrine that a check is only a substitute for money and not money, the delivery of such an instrument does not, by itself operate as payment. This is especially true in the case of a postdated check. Thus, the issuance by the private respondent of the postdated check was not effective payment. It did not comply with his obligation under the arrangement with Miss Lorenzo. Petitioner corporation was therefore justified in suspending his credit card.

3. No. Good faith is presumed and the burden of proving bad faith is on the party alleging it. This private respondent failed to do. In fact, the action of the petitioner belies the existence of bad faith. As early as 28 October 1989, petitioner could have suspended private respondent’s card outright. Instead, petitioner allowed private respondent to use his card for several weeks. Petitioner had even notified private respondent of the impending suspension of his credit card and made special accommodations for him for setting his outstanding account. As such, petitioner cannot be said to have capriciously and arbitrarily canceled the private respondent’s credit card.

It was petitioner’s failure to settle his obligation which caused the suspension of his credit card and subsequent dishonor at Café Adriatico. He can not now pass the blame to the petitioner for not notifying him of the suspension of his card. As quoted earlier, the application contained the stipulation that the petitioner could automatically suspend a card whose billing has not been paid for more than thirty days. Nowhere is it stated in the terms and conditions of the application that there is a need of notice before suspension may be affected as private respondent claims.