CD: Philippine Airlines v. Court of Appeals

September 23, 2010 at 2:03 pm (1990, Case Digests) (, , , , , , )

PHILIPPINE AIRLINES, INC. v. COURT OF APPEALS
G.R. No. L-49188 January 30, 1990
Gutierrez, Jr., J.

Doctrine:
• The payment to the absconding sheriff by check in his name does not operate as a satisfaction 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.

• 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. The obligation is not extinguished and remains suspended until the payment by commercial document is actually realized.

• 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.

• Execution is for the sheriff to accomplish while satisfaction of the judgment is for the creditor to achieve 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.

• Laws are to be interpreted by the spirit which vivifies and not by the letter which killeth. 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.

Facts:
Amelia Tan filed a complaint for damages against petitioner. The Lower Court ruled in her favor. Upon appeal, the CA upheld the decision of the Lower Court with only minor modifications as to the damages to be awarded to Amelia Tan. The corresponding writ of execution was duly referred to Deputy Sheriff Emilio Z. Reyes for enforcement. Checks were in the name of Sheriff Reyes.

Four months later, 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.

Petitioner answered that it has already satisfied its obligation, as evidenced by check vouchers signed and received by Sheriff Reyes. The Court has summoned the sheriff to explain the delay but apparently he absconded or disappeared.

Issue:
1. Whether or not the payment made to the absconding sheriff by check in his name operate to satisfy the judgment debt
2. Whether or not the judgment debtor shall bear the loss for the amount encashed by the absconding sheriff
3. Whether or not execution is the same as satisfaction of judgment

Held:
1. No. 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)

Under ordinary circumstances, payment by the judgment debtor to the sheriff should be valid payment to extinguish the judgment debt. There are circumstances, however, which compel a different conclusion such as when the payment made by the petitioner to the absconding sheriff was not in cash or legal tender but in checks.

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.

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).

2. Yes. PAL 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. 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).

3. No. Section 15, Rule 39, provides:

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. …

Strictly speaking execution cannot be equated with satisfaction of a judgment.

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.

Dissenting Opinions:
Narvasa, J.
• 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.

Feliciano, J.
• The failure of a sheriff to effect 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.

• 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.

• 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.

• Risk is most appropriately borne not by the judgment debtor, nor indeed by the judgment creditor, but by the State itself.

Padilla, J.
• PAL had every right to assume that, as an officer of the law, Sheriff Reyes would perform his duties as enjoined by law. If a judgment debtor cannot rely on and trust an officer of the law, as the Sheriff, whom else can he trust?

• 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.

• 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.

• 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).

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CD: Garcia v. Llamas

September 22, 2010 at 3:31 pm (2003, Case Digests) (, , , , )

ROMEO C. GARCIA v. DIONISIO V. LLAMAS
G.R. No. 154127 December 8, 2003
Panganiban, J.

Doctrine:
Novation cannot be presumed. It must be clearly and unequivocally shown that it indeed took place, either by the express assent of the parties or by the complete incompatibility between the old and the new agreements.

An accommodation party is liable for the instrument to a holder for value even if, at the time of its taking, the latter knew the former to be only an accommodation party. The relation between an accommodation party and the party accommodated is, in effect, one of principal and surety — the accommodation party being the surety. It is a settled rule that a surety is bound equally and absolutely with the principal and is deemed an original promissor and debtor from the beginning.

Facts:
Petitioner and Eduardo De Jesus borrowed P400,000.00 from respondent. Both executed a promissory note wherein they bound themselves jointly and severally to pay the loan on or before 23 January 1997 with a 5% interest per month. The loan has long been overdue and, despite repeated demands, both have failed and refused to pay it. Hence, a complaint was filed against both.

Resisting the complaint, Garcia averred that he assumed no liability because he signed merely as an accommodation party for De Jesus; and that he is relieved from any liability arising from the note inasmuch as the loan had been paid by De Jesus by means of a check dated 17 April 1997; and that, in any event, the issuance of the check and respondent’s acceptance thereof novated or superseded the note.

Respondent answered that there was no novation to speak of because the check bounced.

Issues:
1. Whether or not there was novation in the obligation
2. Whether or not the defense that petitioner was only an accommodation party had any basis

Held:
1. No. In order to change the person of the debtor, the old one must be expressly released from the obligation, and the third person or new debtor must assume the former’s place in the relation (Reyes v. CA). Well-settled is the rule that novation is never presumed (Security Bank v. Cuenca). Consequently, that which arises from a purported change in the person of the debtor must be clear and express. It is thus incumbent on petitioner to show clearly and unequivocally that novation has indeed taken place. Petitioner failed to do this. In the present case, petitioner has not shown that he was expressly released from the obligation, that a third person was substituted in his place, or that the joint and solidary obligation was cancelled and substituted by the solitary undertaking of De Jesus.

Novation is a mode of extinguishing an obligation by changing its objects or principal obligations, by substituting a new debtor in place of the old one, or by subrogating a third person to the rights of the creditor (Idolor v. CA, February 7, 2001). Article 1293 of the Civil Code defines novation as follows:

Art. 1293. Novation which consists in substituting a new debtor in the place of the original one, may be made even without the knowledge or against the will of the latter, but not without the consent of the creditor. Payment by the new debtor gives him rights mentioned in articles 1236 and 1237.”

In general, there are two modes of substituting the person of the debtor: (1) expromision and (2) delegacion. In expromision, the initiative for the change does not come from — and may even be made without the knowledge of — the debtor, since it consists of a third person’s assumption of the obligation. As such, it logically requires the consent of the third person and the creditor. In delegacion, the debtor offers, and the creditor accepts, a third person who consents to the substitution and assumes the obligation; thus, the consent of these three persons are necessary. Both modes of substitution by the debtor require the consent of the creditor.

Novation may also be extinctive or modificatory. It is extinctive when an old obligation is terminated by the creation of a new one that takes the place of the former. It is merely modificatory when the old obligation subsists to the extent that it remains compatible with the amendatory agreement (Babst v. CA). Whether extinctive or modificatory, novation is made either by changing the object or the principal conditions, referred to as objective or real novation; or by substituting the person of the debtor or subrogating a third person to the rights of the creditor, an act known as subjective or personal novation (Spouses Bautista v. Pilar Development Corporation, 371 Phil. 533, August 17, 1999). For novation to take place, the following requisites must concur:

1) There must be a previous valid obligation.
2) The parties concerned must agree to a new contract.
3) The old contract must be extinguished.
4) There must be a valid new contract (Security Bank v Cuenca, October 3, 2000)

Novation may also be express or implied. It is express when the new obligation declares in unequivocal terms that the old obligation is extinguished. It is implied when the new obligation is incompatible with the old one on every point (Article 1292, NCC). The test of incompatibility is whether the two obligations can stand together, each one with its own independent existence (Molino v. Security Diners International Corporation, August 16, 2001).

2. No. The note was made payable to a specific person rather than to bearer or to order — a requisite for negotiability under the Negotiable Instruments Law (NIL). Hence, petitioner cannot avail himself of the NIL’s provisions on the liabilities and defenses of an accommodation party.

Even granting arguendo that the NIL was applicable, still, petitioner would be liable for the promissory note. Under Article 29 of the NIL, an accommodation party is liable for the instrument to a holder for value even if, at the time of its taking, the latter knew the former to be only an accommodation party. The relation between an accommodation party and the party accommodated is, in effect, one of principal and surety — the accommodation party being the surety. It is a settled rule that a surety is bound equally and absolutely with the principal and is deemed an original promissor and debtor from the beginning.

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