[ G.R. No.

199455, June 27, 2018 ]

FEDERAL EXPRESS CORPORATION, PETITIONER, V. LUWALHATI R. ANTONINO AND ELIZA BETTINA RICASA
ANTONINO, RESPONDENTS.

DECISION

LEONEN, J.:
The duty of common carriers to observe extraordinary diligence in shipping goods does not terminate until
delivery to the consignee or to the specific person authorized to receive the shipped goods. Failure to deliver
to the person authorized to receive the goods is tantamount to loss of the goods, thereby engendering the
common carrier's liability for loss. Ambiguities in contracts of carriage, which are contracts of adhesion, must
be interpreted against the common carrier that prepared these contracts.
This resolves a Petition for Review on Certiorari[1] under Rule 45 of the 1997 Rules of Civil Procedure praying
that the assailed Court of Appeals August 31, 2011 Decision [2] and November 21, 2011 Resolution[3] in CA-G.R.
CV No. 91216 be reversed and set aside and that Luwalhati R. Antonino (Luwalhati) and Eliza Bettina Ricasa
Antonino (Eliza) be held liable on Federal Express Corporation's (FedEx) counterclaim.
The assailed Court of Appeals August 31, 2011 Decision denied the appeal filed by FedEx and affirmed the May
8, 2008 Decision[4] of Branch 217, Regional Trial Court, Quezon City, awarding moral and exemplary damages,
and attorney's fees to Luwalhati and Eliza.[5] In its assailed November 21, 2011 Resolution, the Court of
Appeals denied FedEx's Motion for Reconsideration.[6]
Eliza was the owner of Unit 22-A (the Unit) in Allegro Condominium, located at 62 West 62nd St., New York,
United States.[7] In November 2003, monthly common charges on the Unit became due. These charges were
for the period of July 2003 to November 2003, and were for a total amount of US$9,742.81. [8]
On December 15, 2003, Luwalhati and Eliza were in the Philippines. As the monthly common charges on the
Unit had become due, they decided to send several Citibank checks to Veronica Z. Sison (Sison), who was
based in New York. Citibank checks allegedly amounting to US$17,726.18 for the payment of monthly charges
and US$11,619.35 for the payment of real estate taxes were sent by Luwalhati through FedEx with Account
No. x2546-4948-1 and Tracking No. 8442 4588 4268. The package was addressed to Sison who was tasked to
deliver the checks payable to Maxwell-Kates, Inc. and to the New York County Department of Finance. Sison
allegedly did not receive the package, resulting in the non-payment of Luwalhati and Eliza's obligations and
the foreclosure of the Unit.[9]
Upon learning that the checks were sent on December 15, 2003, Sison contacted FedEx on February 9, 2004 to
inquire about the non-delivery. She was informed that the package was delivered to her neighbor but there
was no signed receipt.[10]
On March 14, 2004, Luwalhati and Eliza, through their counsel, sent a demand letter to FedEx for payment of
damages due to the non-delivery of the package, but FedEx refused to heed their demand.[11] Hence, on April
5, 2004, they filed their Complaint[12] for damages.
FedEx claimed that Luwalhati and Eliza "ha[d] no cause of action against it because [they] failed to comply
with a condition precedent, that of filing a written notice of claim within the 45 calendar days from the
acceptance of the shipment."[13] It added that it was absolved of liability as Luwalhati and Eliza shipped
prohibited items and misdeclared these items as "documents."[14] It pointed to conditions under its Air Waybill
prohibiting the "transportation of money (including but not limited to coins or negotiable instruments
equivalent to cash such as endorsed stocks and bonds)."[15]
In its May 8, 2008 Decision,[16] the Regional Trial Court ruled for Luwalhati and Eliza, awarding them moral and
exemplary damages, and attorney's fees.[17]
The Regional Trial Court found that Luwalhati failed to accurately declare the contents of the package as
"checks."[18] However, it ruled that a check is not legal tender or a "negotiable instrument equivalent to cash,"
as prohibited by the Air Waybill.[19] It explained that common carriers are presumed to be at fault whenever
goods are lost.[20] Luwalhati testified on the non-delivery of the package. FedEx, on the other hand, claimed
that the shipment was released without the signature of the actual recipient, as authorized by the shipper or
recipient. However, it failed to show that this authorization was made; thus, it was still liable for the loss of the
package.[21]
On non-compliance with a condition precedent, it ruled that under the Air Waybill, the prescriptive period for
filing an action was "within two (2) years from the date of delivery of the shipment or from the date on which
the shipment should have been delivered."[22]Luwalhati and Eliza's demand letter made on March 11, 2004
was within the two (2)-year period sanctioned by the Air Waybill.[23] The trial court also noted that they were
given a "run-around" by FedEx employees, and thus, were deemed to have complied with the filing of the
formal claim.[24]
The dispositive portion of the Regional Trial Court May 8, 2008 Decision read:
WHEREFORE, judgment is hereby rendered in favor of plaintiffs Luwalhati R. Antonino and Eliza Bettina Ricasa
Antonino ordering the following:
1) The amount of P200,000.00 by way of moral damages;
2) The amount of P100,000.00 by way of exemplary damages; and
[3]) The amount of P150,000.00 as and for attorney's fees. Costs against defendant.
The counterclaim is ordered dismissed.
SO ORDERED.[25]
In its assailed August 31, 2011 Decision,[26] the Court of Appeals affirmed the ruling of the Regional Trial
Court.[27] According to it, by accepting the package despite its supposed defect, FedEx was deemed to have
acquiesced to the transaction. Thus, it must deliver the package in good condition and could not subsequently
deny liability for loss.[28] The Court of Appeals sustained the Regional Trial Court's conclusion that checks are
not legal tender, and thus, not covered by the Air Waybill's prohibition.[29] It further noted that an Air Waybill
is a contract of adhesion and should be construed against the party that drafted it. [30]
The dispositive portion of the Court of Appeals August 31, 2011 Decision read:
WHEREFORE, premises considered, the present appeal is hereby DENIED. The assailed May 08, 2008 Decision
of the Regional Trial Court, Branch 217, Quezon City in Civil case No. Q-04-52325 is AFFIRMED. Costs against
the herein appellant.
SO ORDERED.[31]
Following the Court of Appeals' denial[32] of its Motion for Reconsideration, FedEx filed the present Petition.
For resolution of this Court is the sole issue of whether or not petitioner Federal Express Corporation may be
held liable for damages on account of its failure to deliver the checks shipped by respondents Luwalhati R.
Antonino and Eliza Bettina Ricasa Antonino to the consignee Veronica Sison.
I
Petitioner disclaims liability because of respondents' failure to comply with a condition precedent, that is, the
filing of a written notice of a claim for non-delivery or misdelivery within 45 days from acceptance of the
shipment.[33] The Regional Trial Court found the condition precedent to have been substantially complied with
and attributed respondents' noncompliance to FedEx for giving them a run-around.[34] This Court affirms this
finding.
A provision in a contract of carriage requiring the filing of a formal claim within a specified period is a valid
stipulation. Jurisprudence maintains that compliance with this provision is a legitimate condition precedent to
an action for damages arising from loss of the shipment:
More particularly, where the contract of shipment contains a reasonable requirement of giving notice of loss
of or injury to the goods, the giving of such notice is a condition precedent to the action for loss or injury or
the right to enforce the carrier's liability. Such requirement is not an empty formalism. The fundamental
reason or purpose of such a stipulation is not to relieve the carrier from just liability, but reasonably to inform
it that the shipment has been damaged and that it is charged with liability therefor, and to give it an
opportunity to examine the nature and extent of the injury. This protects the carrier by affording it an
opportunity to make an investigation of a claim while the matter is fresh and easily investigated so as to
safeguard itself from false and fraudulent claims.[35](Citation omitted)
Petitioner's Air Waybill stipulates the following on filing of claims:
Claims for Loss, Damage, or Delay. All claims must be made in writing and within strict time limits. See any
applicable tariff, our service guide or our standard conditions for carriage for details.
The right to damages against us shall be extinguished unless an action is brought within two (2) years from the
date of delivery of the shipment or from the date on which the shipment should have been delivered.
Within forty-five (45) days after notification of the claim, it must be documented by sending to us [all the]
relevant information about it.[36]
For their claim to prosper, respondents must, thus, surpass two (2) hurdles: first, the filing of their formal
claim within 45 days; and second, the subsequent filing of the action within two (2) years.
There is no dispute on respondents' compliance with the second period as their Complaint was filed on April 5,
2004.[37]
In appraising respondents' compliance with the first condition, this Court is guided by settled standards in
jurisprudence.
In Philippine Airlines, Inc. v. Court of Appeals,[38] Philippine Airlines alleged that shipper Gilda Mejia (Mejia)
failed to file a formal claim within the period stated in the Air Waybill. [39] This Court ruled that there was
substantial compliance with the period because of the zealous efforts demonstrated by Mejia in following up
her claim.[40] These efforts coupled with Philippine Airlines' "tossing around the claim and leaving it unresolved
for an indefinite period of time" led this Court to deem the requisite period satisfied. [41] This is pursuant to
Article 1186 of the New Civil Code which provides that "[t]he condition shall be deemed fulfilled when the
obligor voluntarily prevents its fulfillment":[42]
Considering the abovementioned incident and private respondent Mejia's own zealous efforts in following up
the claim, it was clearly not her fault that the letter of demand for damages could only be filed, after months
of exasperating follow-up of the claim, on August 13, 1990. If there was any failure at all to file the formal
claim within the prescriptive period contemplated in the air waybill, this was largely because of PAL's own
doing, the consequences of which cannot, in all fairness, be attributed to private respondent.
Even if the claim for damages was conditioned on the timely filing of a formal claim, 'under Article 1186 of the
Civil Code that condition was deemed fulfilled, considering that the collective action of PAL's personnel in
tossing around the claim and leaving it unresolved for an indefinite period of time was tantamount to
"voluntarily preventing its fulfillment." On grounds of equity, the filing of the baggage freight claim, which
sufficiently informed PAL of the damage sustained by private respondent's cargo, constituted substantial
compliance with the requirement in the contract for the filing of a formal claim.[43] (Citations omitted)
Here, the Court of Appeals detailed the efforts made by respondent Luwalhati and consignee Sison. It also
noted petitioner's ambiguous and evasive responses, nonchalant handling of respondents' concerns, and how
these bogged down respondents' actions and impaired their compliance with the required 45-day period:
Anent the issues concerning lack of cause of action and their so-called "run-around" matter, We uphold the
lower court's finding that the herein appellees complied with the requirement for the immediate filing of a
formal claim for damages as required in the Air Waybill or, at least, We find that there was substantial
compliance therewith. Luwalhati testified that the addressee, Veronica Z. Sison promptly traced the
whereabouts of the said package, but to no avail. Her testimony narrated what happened thereafter, thus:
". . .
All right. She was informed that it was lost. What steps did you take to find out or to recover back
"COURT:
this package?

"ATTY. ALENTAJAN:
"Q What did you do to Fedex?
". . .

First, I asked the secretary here to call Fedex Manila and they said, the record show that it was sent
WITNESS:
to New York, Your Honor.

". . .
ATTY. ALENTAJAN:
"Q After calling Fedex, what did Fedex do?

None, sir. They washed their hands because according to them it is New York because they have sent
"A
it. Their records show that New York received it, Sir.

"Q New York Fedex?

"A Yes, Sir.

"Q Now what else did you do after that?

"A And then I asked my friend Mrs. Veronica Sison to trace it, Sir.

". . .

"Q What did she report to you?

She reported to me that first, she checked with the Fedex and the first answer was they were going
to trace it. The second answer was that, it was delivered to the lady, her neighbor and the neighbor
completely denied it and as they show a signature that is not my signature, so the next time she
"A
called again, another person answered. She called to say that the neighbor did not receive and the
person on the other line I think she got his name, said that, it is because it is December and we
usually do that just leave it and then they cut the line and so I asked my friend to issue a sworn
 statement in the form of affidavit and have it notarized in the Philippine Embassy or Consulate, Sir.
That is what she did.

On your part here in the Philippines after doing that, after instructing Veronica Sison, what else did
"Q
you do because of this violation?

I think the next step was to issue a demand letter because any way I do not want to go to Court, it is
"A
so hard, Sir."
The foregoing event show Luwalhati's own ardent campaign in following up the claim. To the Court's mind, it
is beyond her control why the demand letter for damages was only sent subsequent to her infuriating follow-
ups regarding the whereabouts of the said package. We can surmise that if there was any omission at all to file
the said claim within the prescriptive period provided for under the Air Waybill it was mostly due to herein
appellant's own behavior, the outcome thereof cannot, by any chance, be imputed to the herein
appellees.[44] (Grammatical errors in the original)
Petitioner has been unable to persuasively refute Luwalhati's recollection of the efforts that she and Sison
exerted, and of the responses it gave them. It instead insists that the 45-day period stated in its Air Waybill is
sacrosanct. This Court is unable to bring itself to sustaining petitioner's appeal to a convenient reprieve. It is
one with the Regional Trial Court and the Court of Appeals in stressing that respondents' inability to
expediently file a formal claim can only be attributed to petitioner hampering its fulfillment. Thus,
respondents must be deemed to have substantially complied with the requisite 45-day period for filing a
formal claim.
II
The Civil Code mandates common carriers to observe extraordinary diligence in caring for the goods they are
transporting:
Article 1733. Common carriers, from the nature of their business and for reasons of public policy, are bound to
observe extraordinary diligence in the vigilance over the goods and for the safety of the passengers
transported by them, according to all the circumstances of each case.
"Extraordinary diligence is that extreme measure of care and caution which persons of unusual prudence and
circumspection use for securing and preserving their own property or rights."[45] Consistent with the mandate
of extraordinary diligence, the Civil Code stipulates that in case of loss or damage to goods, common carriers
are presumed to be negligent or at fault,[46] except in the following instances:
(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the containers;
(5) Order or act or competent public authority.[47]
In all other cases, common carriers must prove that they exercised extraordinary diligence in the performance
of their duties, if they are to be absolved of liability.[48]
The responsibility of common carriers to exercise extraordinary diligence lasts from the time the goods are
unconditionally placed in their possession until they are delivered "to the consignee, or to the person who has
a right to receive them."[49] Thus, part of the extraordinary responsibility of common carriers is the duty to
ensure that shipments are received by none but "the person who has a right to receive them." [50] Common
carriers must ascertain the identity of the recipient. Failing to deliver shipment to the designated recipient
amounts to a failure to deliver. The shipment shall then be considered lost, and liability for this loss ensues.
Petitioner is unable to prove that it exercised extraordinary diligence in ensuring delivery of the package to its
designated consignee. It claims to have made a delivery but it even admits that it was not to the designated
consignee. It asserts instead that it was authorized to release the package without the signature of the
designated recipient and that the neighbor of the consignee, one identified only as "LGAA 385507," received
it.[51] This fails to impress.
The assertion that receipt was made by "LGAA 385507" amounts to little, if any, value in proving petitioner's
successful discharge of its duty. "LGAA 385507" is nothing but an alphanumeric code that outside of
petitioner's personnel and internal systems signifies nothing. This code does not represent a definite, readily
identifiable person, contrary to how commonly accepted identifiers, such as numbers attached to official,
public, or professional identifications like social security numbers and professional license numbers, function.
Reliance on this code is tantamount to reliance on nothing more than petitioner's bare, self-serving
allegations. Certainly, this cannot satisfy the requisite of extraordinary diligence consummated through
delivery to none but "the person who has a right to receive"[52] the package.
Given the circumstances in this case, the more reasonable conclusion is that the package was not delivered.
The package shipped by respondents should then be considered lost, thereby engendering the liability of a
common carrier for this loss.
Petitioner cannot but be liable for this loss. It failed to ensure that the package was delivered to the named
consignee. It admitted to delivering to a mere neighbor. Even as it claimed this, it failed to identify that
neighbor.
III
Petitioner further asserts that respondents violated the terms of the Air Waybill by shipping checks. It adds
that this violation exempts it from liability.[53]
This is untenable.
Petitioner's International Air Waybill states:
Items Not Acceptable for Transportation. We do not accept transportation of money (including but not
limited to coins or negotiable instruments equivalent to cash such as endorsed stocks and bonds). We exclude
all liability for shipments of such items accepted by mistake. Other items may be accepted for carriage only to
limited destinations or under restricted conditions. We reserve the right to reject packages based upon these
limitations or for reasons of safety or security. You may consult our Service Guide, Standard Conditions of
Carriage, or any applicable tariff for specific details.[54] (Emphasis in the original)
The prohibition has a singular object: money. What follows the phrase "transportation of money" is a phrase
enclosed in parentheses, and commencing with the words "including but not limited to." The additional
phrase, enclosed as it is in parentheses, is not the object of the prohibition, but merely a postscript to the
word "money." Moreover, its introductory words "including but not limited to" signify that the items that
follow are illustrative examples; they are not qualifiers that are integral to or inseverable from "money."
Despite the utterance of the enclosed phrase, the singular prohibition remains: money.
Money is "what is generally acceptable in exchange for goods."[55] It can take many forms, most commonly as
coins and banknotes. Despite its myriad forms, its key element is its general acceptability. [56] Laws usually
define what can be considered as a generally acceptable medium of exchange. [57] In the Philippines, Republic
Act No. 7653, otherwise known as The New Central Bank Act, defines "legal tender" as follows:
All notes and coins issued by the Bangko Sentral shall be fully guaranteed by the Government of the Republic
of the Philippines and shall be legal tender in the Philippines for all debts, both public and private: Provided,
however, That, unless otherwise fixed by the Monetary Board, coins shall be legal tender in amounts not
exceeding Fifty pesos (P50.00) for denomination of Twenty-five centavos and above, and in amounts not
exceeding Twenty pesos (P20.00) for denominations of Ten centavos or less.[58]
It is settled in jurisprudence that checks, being only negotiable instruments, are only substitutes for money
and are not legal tender; more so when the check has a named payee and is not payable to bearer.
In Philippine Airlines, Inc. v. Court of Appeals,[59] this Court ruled that the payment of a check to the sheriff did
not satisfy the judgment debt as checks are not considered legal tender. This has been maintained in other
cases decided by this Court. In Cebu International Finance Corporation v. Court of Appeals,[60] this Court held
that the debts paid in a money market transaction through the use of a check is not a valid tender of payment
as a check is not legal tender in the Philippines. Further, in Bank of the Philippine Islands v. Court of
Appeals,[61] this Court held that "a check, whether a manager's check or ordinary check, is not legal tender."[
62]

The Air Waybill's prohibition mentions "negotiable instruments" only in the course of making an example.
Thus, they are not prohibited items themselves. Moreover, the illustrative example does not even pertain to
negotiable instruments per se but to "negotiable instruments equivalent to cash."[63]
The checks involved here are payable to specific payees, Maxwell-Kates, Inc. and the New York County
Department of Finance.[64] Thus, they are order instruments. They are not payable to their bearer, i.e., bearer
instruments. Order instruments differ from bearer instruments in their manner of negotiation:
Under Section 30 of the [Negotiable Instruments Law], an order instrument requires an indorsement from the
payee or holder before it may be validly negotiated. A bearer instrument, on the other hand, does not require
an indorsement to be validly negotiated.[65]
There is no question that checks, whether payable to order or to bearer, so long as they comply with the
requirements under Section 1 of the Negotiable Instruments Law, are negotiable instruments. [66] The more
relevant consideration is whether checks with a specified payee are negotiable instruments equivalent to cash,
as contemplated in the example added to the Air Waybill's prohibition.
This Court thinks not. An order instrument, which has to be endorsed by the payee before it may be
negotiated,[67] cannot be a negotiable instrument equivalent to cash. It is worth emphasizing that the
instruments given as further examples under the Air Waybill must be endorsed to be considered equivalent to
cash:[68]
Items Not Acceptable for Transportation. We do not accept transportation of money (including but not
limited to coins or negotiable instruments equivalent to cash such as endorsed stocks and bonds). ... (Emphasis
in the original)[69]
What this Court's protracted discussion reveals is that petitioner's Air Waybill lends itself to a great deal of
confusion. The clarity of its terms leaves much to be desired. This lack of clarity can only militate against
petitioner's cause.
The contract between petitioner and respondents is a contract of adhesion; it was prepared solely by
petitioner for respondents to conform to.[70] Although not automatically void, any ambiguity in a contract of
adhesion is construed strictly against the party that prepared it.[71]Accordingly, the prohibition against
transporting money must be restrictively construed against petitioner and liberally for respondents. Viewed
through this lens, with greater reason should respondents be exculpated from liability for shipping documents
or instruments, which are reasonably understood as not being money, and for being unable to declare them as
such.
Ultimately, in shipping checks, respondents were not violating petitioner's Air Waybill. From this, it follows
that they committed no breach of warranty that would absolve petitioner of liability.
WHEREFORE, the Petition for Review on Certiorari is DENIED. The assailed August 31, 2011 Decision and
November 21, 2011 Resolution of the Court of Appeals in CA-G.R. CV No. 91216 are AFFIRMED.
SO ORDERED.

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

PHILIPPINE AIRLINES, INC., petitioner,

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

GUTIERREZ, JR., J.:

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

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

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

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

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

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:

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.1âwphi1 We rule against the petitioner.

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

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

the respondent court held:

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

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.

G.R. No. 123031 October 12, 1999

CEBU INTERNATIONAL FINANCE CORPORATION, petitioner,
vs.
COURT OF APPEALS, VICENTE ALEGRE, respondents.

QUISUMBING, J.:

This petition for review on certiorari assails respondent appellate court's Decision, 1 dated December
8, 1995, in CA G.R. CV No. 44085, which affirmed the ruling of the Regional Trial Court of Makati,
Branch 132. The dispositive portion of the trial court's decision reads:

WHEREFORE, judgment is hereby rendered ordering defendant [herein petitioner] to

pay plaintiff [herein private respondent]:

(1) the principal sum of P514,390.94 with legal interest thereon computed
from August 6, 1991 until fully paid; and

(2) the costs of suit.

SO ORDERED. 2

Based on the records, the following are the pertinent facts of the case:

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

market operations.

On April 25, 1991, private respondent, Vicente Alegre, invested with CIFC, five hundred thousand
(P500,000.00) pesos, in cash. Petitioner issued a promissory note to mature on May 27, 1991. The
note for five hundred sixteen thousand, two hundred thirty-eight pesos and sixty-seven centavos
(P516,238.67) covered private respondent's 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 (hereinafter the CHECK) for five hundred
fourteen thousand, three hundred ninety pesos and ninety-four centavos (P514,390.94) in favor of the
private respondent as proceeds of his matured investment plus interest. The CHECK was drawn from
petitioner's current account number 0011-0803-59, maintained with the Bank of the Philippine Islands
(BPI), main branch at Makati City.1âwphi1.nêt

On June 17, 1991, private respondent's wife deposited the CHECK with Rizal Commercial Banking
Corp. (RCBC), in Puerto Princesa, Palawan. BPI dishonored the CHECK with the annotation, that the
"Check (is) Subject of an Investigation." BPI took custody of the CHECK pending an investigation of
several counterfeit checks drawn against CIFC's aforestated checking account. BPI used the check to
trace the perpetrators of the forgery.

Immediately, private respondent notified CIFC of the dishonored CHECK and demanded, on several
occasions, that he be paid in cash. CIFC refused the request, and instead instructed private
respondent to wait for its ongoing bank reconciliation with BPI. Thereafter, private respondent,
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.
On February 25, 1992, private respondent Alegre filed a complaint 3 for recovery of a sum of money
against the petitioner with the Regional Trial Court of Makati (RTC-Makati), Branch 132.

On July 13, 1992, CIFC sought to recover its lost funds and formally filed against BPI, a separate civil
action 4 for collection of a sum of money with the RTC-Makati, Branch 147. The collection suit alleged
that BPI unlawfully deducted from CIFC's checking account, counterfeit checks amounting to one
million, seven hundred twenty-four thousand, three hundred sixty-four pesos and fifty-eight centavos
(P1,724,364.58). The action included the prayer to collect the amount of the CHECK paid to Vicente
Alegre but dishonored by BPI.

Meanwhile, in response to Alegre's complaint with RTC-Makati, Branch 132, CIFC filed a motion for
leave of court to file a third-party complaint against BPI. BPI was impleaded by CIFC to enforce a
right, for contribution and indemnity, with respect to Alegre's claim. CIFC asserted that the CHECK it
issued in favor of Alegre was genuine, valid and sufficiently funded.

On July 23, 1992, the trial court granted CIFC's motion. However, BPI moved to dismiss the third-
party complaint on the ground of pendency of another action with RTC-Makati, Branch 147. Acting on
the motion, the trial court dismissed the third-party complaint on November 4, 1992, after finding that
the third party complaint filed by CIFC against BPI is similar to its ancillary claim against the bank,
filed with RTC-Makati Branch 147.

Thereafter, during the hearing by RTC-Makati, Branch 132, held on May 27, and June 22, 1993, Vito
Arieta, Bank Manager of BPI, testified that the bank, indeed, dishonored the CHECK, retained the
original copy and forwarded only a certified true copy to RCBC. When Arieta was recalled on July 20,
1993, he testified that on July 16, 1993, BPI encashed and deducted the said amount from the
account of CIFC, but the proceeds, as well as the CHECK remained in BPI's custody. The bank's
move was in accordance with the Compromise Agreement 5 it entered with CIFC to end the litigation
in RTC-Makati, Branch 147. The compromise agreement, which was submitted for the approval of the
said court, provided that:

1. Defendant [BPI] shall pay to the plaintiff [CIFC] the amount of

P1,724,364.58 plus P20,000 litigation expenses as full and final settlement
of all of plaintiff's claims as contained in the Amended Complaint dated
September 10, 1992. The aforementioned amount shall be credited to
plaintiff's current account No. 0011-0803-59 maintained at defendant's
Main Branch upon execution of this Compromise Agreement.

2. Thereupon, defendant shall debit the sum of P514,390.94 from the

aforesaid current account representing payment/discharge of BPI Check
No. 513397 payable to Vicente Alegre.

3. In case plaintiff is adjudged liable to Vicente Alegre in Civil Case No.

92-515 arising from the alleged dishonor of BPI Check No. 513397,
plaintiff cannot go after the defendant: otherwise stated, the defendant
shall not be liable to the plaintiff. Plaintiff [CIFC] may however set-up the
defense of payment/discharge stipulated in par. 2 above. 6

On July 27, 1993, BPI filed a separate collection suit 7 against Vicente Alegre with the RTC-Makati,
Branch 62. The complaint alleged that Vicente Alegre connived with certain Lina A. Pena and Lita A.
Anda and forged several checks of BPI's client, CIFC. The total amount of counterfeit checks was
P1,724,364.58. BPI prevented the encashment of some checks amounting to two hundred ninety five
thousand, seven hundred seventy-five pesos and seven centavos (P295,775.07). BPI admitted that
the CHECK, payable to Vicente Alegre for P514,390.94, was deducted from BPI's claim, hence, the
balance of the loss incurred by BPI was nine hundred fourteen thousand, one hundred ninety-eight
pesos and fifty-seven centavos (P914,198.57), plus costs of suit for twenty thousand (P20,000.00)
pesos. The records are silent on the outcome of this case.

On September 27, 1993, RTC-Makati, Branch 132, rendered judgment in favor of Vicente Alegre.

CIFC appealed from the adverse decision of the trial court. The respondent court affirmed the
decision of the trial court.

Hence this appeal, 8 in which petitioner interposes the following assignments of errors:

1. The Honorable Court of Appeals erred in affirming the finding of the

Honorable Trial Court holding that petitioner was not discharged from the
liability of paying the value of the subject check to private respondent after
BPI has debited the value thereof against petitioner's current account.

2. The Honorable Court of Appeals erred in applying the provisions of

paragraph 2 of Article 1249 of the Civil Code in the instant case. The
applicable law being the Negotiable Instruments Law.

3. The Honorable Court of Appeals erred in affirming the Honorable Trial

Court's findings that the petitioner was guilty of negligence and delay in
the performance of its obligation to the private respondent.

4. The Honorable Court of Appeals erred in affirming the Honorable Trial

Court's decision ordering petitioner to pay legal interest and the cost of
suit.

5. The Honorable Court of Appeals erred in affirming the Honorable Trial

Court's dismissal of petitioner's third-party complaint against BPI.

These issues may be synthesized into three:

1. WHETHER OR NOT ARTICLE 1249 OF THE NEW CIVIL CODE

APPLIES IN THE PRESENT CASE;

2. WHETHER OR NOT "BPI CHECK NO. 513397" WAS VALIDLY

DISCHARGED; and

3. WHETHER OR NOT THE DISMISSAL OF THE THIRD PARTY

COMPLAINT OF PETITIONER AGAINST BPI BY REASON OF LIS
PENDENS WAS PROPER?

On the first issue, petitioner contends that the provisions of the Negotiable Instruments Law (NIL) are
the pertinent laws to govern its money market transaction with private respondent, and not paragraph
2 of Article 1249 of the Civil Code. Petitioner stresses that it had already been discharged from the
liability of paying the value of the CHECK due to the following circumstances:

1) There was "ACCEPTANCE" of the subject check by BPI, the drawee

bank, as defined under the Negotiable Instruments Law, and therefore,
 BPI, the drawee bank, became primarily liable for the payment of the
check, and consequently, the drawer, herein petitioner, was discharged
from its liability thereon;

2) Moreover, BPI, the drawee bank, has not validly DISHONORED the
subject check; and,

3) The act of BPI, the drawee bank of debiting/deducting the value of the
check from petitioner's account amounted to and/or constituted a
discharge of the drawer's (petitioner's) liability under the
instrument/subject check. 9

Petitioner cites Section 137 of the Negotiable Instruments Law, which states:

Liability of drawee retaining or destroying bill — Where a drawee to whom a bill is

delivered for acceptance destroys the same, or refuses within twenty-four hours
after such delivery or such other period as the holder may allow, to return the bill
accepted or non-accepted to the Holder, he will be deemed to have accepted the
same.

Petitioner asserts that since BPI accepted the instrument, the bank became primarily liable for the
payment of the CHECK. Consequently, when BPI offset the value of CHECK against the losses from
the forged checks allegedly committed by the private respondent, the check was deemed paid.

Art. 1249 of the New Civil Code deals with a mode of extinction of an obligation and expressly
provides for the medium in the "payment of debts." It provides that:

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

The delivery of promissory notes payable to order, or bills of exchange or other

mercantile documents shall produce the effect of payment only when they have
been cashed, or when through the fault of the creditor they have been impaired.

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

Considering the nature of a money market transaction, the above-quoted provision should be applied
in the present controversy. As held in Perez vs. Court of Appeals, 10 a "money market is a market
dealing in standardized short-term credit instruments (involving large amounts) where lenders and
borrowers do not deal directly with each other but through a middle man or dealer in open market. In
a money market transaction, the investor is a lender who loans his money to a borrower through a
middleman or dealer. 11

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, 12 the holder has an immediate right of recourse against the drawer, 13 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. In the case of Philippine Airlines, Inc. vs. Court of Appeals, 14 this Court held:

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.) 15

Turning now to the second issue, 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. The parties intended to amicably settle the collection suit filed by CIFC with the
RTC-Makati, Branch 147, by entering into a compromise agreement, which reads:

xxx xxx xxx

2. Thereupon, defendant shall debit the sum of P514,390.94 from the

aforesaid current account representing payment/discharge of BPI Check
No. 513397 payable to Vicente Alegre.

3. In case plaintiff is adjudged liable to Vicente Alegre in Civil Case No.

92-515 arising from the alleged dishonor of BPI Check No. 513397,
plaintiff cannot go after the defendant; otherwise stated, the defendant
shall not be liable to the plaintiff. Plaintiff however (sic) set-up the defense
of payment/discharge stipulated in par. 2
above. 16

A compromise is a contract whereby the parties, by making reciprocal concessions, avoid a litigation
or put an end to one already commenced. 17 It is an agreement between two or more persons who,
for preventing or putting an end to a lawsuit, adjust their difficulties by mutual consent in the manner
which they agree on, and which everyone of them prefers in the hope of gaining, balanced by the
danger of losing. 18 The compromise agreement could not bind a party who did not sign the
compromise agreement nor avail of its benefits. 19 Thus, the stipulations in the compromise
agreement is unenforceable against Vicente Alegre, not a 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. The codal admonition on this issue is clear:

Art. 1317 —

No one may contract in the name of another without being authorized by the latter, or
unless he has by law a right to represent him.

A Contract entered into in the name of another by one who has no authority or legal
representation, or who has acted beyond his powers, shall be unenforceable, unless it
 is ratified, expressly or impliedly, by the person on whose behalf it has been executed,
before it is revoked by the other contracting party. 20

BPI's confiscation of Alegre's money constitutes garnishment without the parties going through a valid
proceeding in court. Garnishment is an attachment by means of which the plaintiff seeks to subject to
his claim the property of the defendant in the hands of a third person or money owed to such third
person or a garnishee to the defendant. 21 The garnishment procedure must be upon proper order of
RTC-Makati, Branch 62, the court who had jurisdiction over the collection suit filed by BPI against
Alegre. In effect, CIFC has not yet tendered a valid payment of its obligation to the private
respondent. Tender of payment involves a positive and unconditional act by the obligor of offering
legal tender currency as payment to the obligee for the former's obligation and demanding that the
latter accept the same. 22 Tender of payment cannot be presumed by a mere inference from
surrounding circumstances.

With regard to the third issue, for litis pendentia to be a ground for the dismissal of an action, the
following requisites must concur: (a) identity of parties or at least such as to represent the same
interest in both actions; (b) identity of rights asserted and relief prayed for, the relief being founded on
the same acts; and (c) the identity in the two cases should be such that the judgment which may be
rendered in one would, regardless of which party is successful, amount to res judicata in the other. 23

The trial court's ruling as adopted by the respondent court states, thus:

A perusal of the complaint in Civil Case No. 92-1940, entitled Cebu International
Finance Corporation vs. Bank of the Philippine Islands now pending before Branch 147
of this Court and the Third Party Complaint in the instant case would readily show that
the parties are not only identical but also the cause of action being asserted, which is
the recovery of the value of BPI Check No. 513397 is the same. In Civil Case No. 92-
1940 and in the Third Party Complaint the rights asserted and relief prayed for, the
reliefs being founded on the facts, are identical.

xxx xxx xxx

WHEREFORE, the motion to dismiss is granted and consequently, the Third Party
Complaint is hereby ordered dismissed on ground of lis pendens. 24

We agree with the observation of the respondent court that, as between the third party claim filed by
the petitioner against BPI in Civil Case No. 92-515 and petitioner's ancillary claim against the bank in
Civil Case No. 92-1940, there is identity of parties as well as identity of rights asserted, and that any
judgment that may be rendered in one case will amount to res judicata in another.

The compromise agreement between CIFC and BPI, categorically provided that "In case plaintiff is
adjudged liable to Vicente Alegre in Civil Case No. 92-515 arising from the alleged dishonor of BPI
Check No. 513397, plaintiff (CIFC) cannot go after the defendant (BPI); otherwise stated, the
defendant shall not be liable to the plaintiff." 25Clearly, this stipulation expressed that CIFC had
already abandoned any further claim against BPI with respect to the value of BPI Check No. 513397.
To ask this Court to allow BPI to be a party in the case at bar, would amount to res judicata and
would violate terms of the compromise agreement between CIFC and BPI. The general rule is that a
compromise has upon the parties the effect and authority of res judicata, with respect to the matter
definitely stated therein, or which by implication from its terms should be deemed to have been
included therein. 26 This holds true even if the agreement has not been judicially approved. 27
WHEREFORE, the instant petition is hereby DENIED. The Decision of the Court of Appeals in CA-
G.R. CV No. 44085 is AFFIRMED. Costs against petitioner.1âwphi1.nêt

SO ORDERED.

G.R. No. 112392 February 29, 2000

BANK OF THE PHILIPPINE ISLANDS, petitioner,

vs.
COURT OF APPEALS and BENJAMIN C. NAPIZA, respondents.

YNARES-SANTIAGO, J.:

This is a petition for review on certiorari of the Decision1 of the Court of Appeals in CA-G.R. CV No.
37392 affirming in toto that of the Regional Trial Court of Makati, Branch 139,2 which dismissed the
complaint filed by petitioner Bank of the Philippine Islands against private respondent Benjamin C.
Napiza for sum of money.

On September 3, 1987, private respondent deposited in Foreign Currency Deposit Unit (FCDU)
Savings Account No. 028-1873 which he maintained in petitioner bank's Buendia Avenue Extension
Branch, Continental Bank Manager's Check No. 000147574 dated August 17, 1984, payable to "cash"
in the amount of Two Thousand Five Hundred Dollars ($2,500.00) and duly endorsed by private
respondent on its dorsal side.5 It appears that the check belonged to a certain Henry who went to the
office of private respondent and requested him to deposit the check in his dollar account by way of
accommodation and for the purpose of clearing the same. Private respondent acceded, and agreed
to deliver to Chan a signed blank withdrawal slip, with the understanding that as soon as the check is
cleared, both of them would go to the bank to withdraw the amount of the check upon private
respondent's presentation to the bank of his passbook.

Using the blank withdrawal slip given by private respondent to Chan, on October 23, 1984, one
Ruben Gayon, Jr. was able to withdraw the amount of $2,541.67 from FCDU Savings Account No.
028-187. Notably, the withdrawal slip shows that the amount was payable to Ramon A. de Guzman
and Agnes C. de Guzman and was duly initialed by the branch assistant manager, Teresita Lindo. 6

On November 20, 1984, petitioner received communication from the Wells Fargo Bank International
of New York that the said check deposited by private respondent was a counterfeit check 7 because it
was "not of the type or style of checks issued by Continental Bank International."8 Consequently, Mr.
Ariel Reyes, the manager of petitioner's Buendia Avenue Extension Branch, instructed one of its
employees, Benjamin D. Napiza IV, who is private respondent's son, to inform his father that the
check bounced.9 Reyes himself sent a telegram to private respondent regarding the dishonor of the
check. In turn, private respondent's son wrote to Reyes stating that the check been assigned "for
encashment" to Ramon A. de Guzman and/or Agnes C. de Guzman after it shall have been cleared
upon instruction of Chan. He also said that upon learning of the dishonor of the check, his father
immediately tried to contact Chan but the latter was out of town. 10

Private respondent's son undertook to return the amount of $2,500.00 to petitioner bank. On
December 18, 1984, Reyes reminded private respondent of his son's promise and warned that should
he fail to return that amount within seven (7) days, the matter would be referred to the bank's lawyers
for appropriate action to protect the bank's interest.11 This was followed by a letter of the bank's
lawyer dated April 8, 1985 demanding the return of the $2,500.00. 12
In reply, private respondent wrote petitioner's counsel on April 20, 1985 13 stating that he deposited
the check "for clearing purposes" only to accommodate Chan. He added:

Further, please take notice that said check was deposited on September 3, 1984 and
withdrawn on October 23, 1984, or a total period of fifty (50) days had elapsed at the time of
withdrawal. Also, it may not be amiss to mention here that I merely signed an authority to
withdraw said deposit subject to its clearing, the reason why the transaction is not reflected in
the passbook of the account. Besides, I did not receive its proceeds as may be gleaned from
the withdrawal slip under the captioned signature of recipient.1âwphi1.nêt

If at all, my obligation on the transaction is moral in nature, which (sic) I have been and is (sic)
still exerting utmost and maximum efforts to collect from Mr. Henry Chan who is directly liable
under the circumstances.

xxx xxx xxx

On August 12, 1986, petitioner filed a complaint against private respondent, praying for the return of
the amount of $2,500.00 or the prevailing peso equivalent plus legal interest from date of demand to
date of full payment, a sum equivalent to 20% of the total amount due as attorney's fees, and litigation
and/or costs of suit.

Private respondent filed his answer, admitting that he indeed signed a "blank" withdrawal slip with the
understanding that the amount deposited would be withdrawn only after the check in question has
been cleared. He likewise alleged that he instructed the party to whom he issued the signed blank
withdrawal slip to return it to him after the bank draft's clearance so that he could lend that party his
passbook for the purpose of withdrawing the amount of $2,500.00. However, without his knowledge,
said party was able to withdraw the amount of $2,541.67 from his dollar savings account through
collusion with one of petitioner's employees. Private respondent added that he had "given the Plaintiff
fifty one (51) days with which to clear the bank draft in question." Petitioner should have disallowed
the withdrawal because his passbook was not presented. He claimed that petitioner had no one to
blame except itself "for being grossly negligent;" in fact, it had allegedly admitted having paid the
amount in the check "by mistake" . . . "if not altogether due to collusion and/or bad faith on the part of
(its) employees." Charging petitioner with "apparent ignorance of routine bank procedures," by way of
counterclaim, private respondent prayed for moral damages of P100,000.00, exemplary damages of
P50,000.00 and attorney's fees of 30% of whatever amount that would be awarded to him plus an
honorarium of P500.00 per appearance in court.

Private respondent also filed a motion for admission of a third party complaint against Chan. He
alleged that "thru strategem and/or manipulation," Chan was able to withdraw the amount of
$2,500.00 even without private respondent's passbook. Thus, private respondent prayed that third
party defendant Chan be made to refund to him the amount withdrawn and to pay attorney's fees of
P5,000.00 plus P300.00 honorarium per appearance.

Petitioner filed a comment on the motion for leave of court to admit the third party complaint,
whenever it asserted that per paragraph 2 of the Rules and Regulations governing BPI savings
accounts, private respondent alone was liable "for the value of the credit given on account of the draft
or check deposited." It contended that private respondent was estopped from disclaiming liability
because he himself authorized the withdrawal of the amount by signing the withdrawal slip. Petitioner
prayed for the denial of the said motion so as not to unduly delay the disposition of the main case
asserting that private respondent's claim could be ventilated in another case.
Private respondent replied that for the parties to obtain complete relief and to avoid multiplicity of
suits, the motion to admit third party complaint should be granted. Meanwhile, the trial court issued
orders on August 25, 1987 and October 28, 1987 directing private respondent to actively participate
in locating Chan. After private respondent failed to comply, the trial court, on May 18, 1988, dismissed
the third party complaint without prejudice.

On November 4, 1991, a decision was rendered dismissing the complaint. The lower court held that
petitioner could not hold private respondent liable based on the check's face value alone. To so hold
him liable "would render inutilethe requirement of "clearance" from the drawee bank before the value
of a particular foreign check or draft can be credited to the account of a depositor making such
deposit." The lower court further held that "it was incumbent upon the petitioner to credit the value of
the check in question to the account of the private respondent only upon receipt of the notice of final
payment and should not have authorized the withdrawal from the latter's account of the value or
proceeds of the check." Having admitted that it committed a "mistake" in not waiting for the clearance
of the check before authorizing the withdrawal of its value or proceeds, petitioner should suffer the
resultant loss.

On appeal, the Court of Appeals affirmed the lower court's decision. The appellate court held that
petitioner committed "clears gross negligence" in allowing Ruben Gayon, Jr. to withdraw the money
without presenting private respondent's passbook and, before the check was cleared and in crediting
the amount indicated therein in private respondent's account. It stressed that the mere deposit of a
check in private respondent's account did not mean that the check was already private respondent's
property. The check still had to be cleared and its proceeds can only be withdrawn upon presentation
of a passbook in accordance with the bank's rules and regulations. Furthermore, petitioner's
contention that private respondent warranted the check's genuineness by endorsing it is untenable for
it would render useless the clearance requirement. Likewise, the requirement of presentation of a
passbook to ascertain the propriety of the accounting reflected would be a meaningless exercise.
After all, these requirements are designed to protect the bank from deception or fraud.

The Court of Appeals cited the case of Roman Catholic Bishop of Malolos, Inc. v. IAC,14 where this
Court stated that a personal check is not legal tender or money, and held that the check deposited in
this case must be cleared before its value could be properly transferred to private respondent's
account.

Without filing a motion for the reconsideration of the Court of Appeals' Decision, petitioner filed this
petition for review on certiorari, raising the following issues:

1. WHETHER OR NOT RESPONDENT NAPIZA IS LIABLE UNDER HIS WARRANTIES AS A

GENERAL INDORSER.

2. WHETHER OR NOT A CONTRACT OF AGENCY WAS CREATED BETWEEN

RESPONDENT NAPIZA AND RUBEN GAYON.

3. WHETHER OR NOT PETITIONER WAS GROSSLY NEGLIGENT IN ALLOWING THE

WITHDRAWAL.

Petitioner claims that private respondent, having affixed his signature at the dorsal side of the check,
should be liable for the amount stated therein in accordance with the following provision of the
Negotiable Instruments Law (Act No. 2031):

Sec. 66. Liability of general indorser. — Every indorser who indorses without qualification,
warrants to all subsequent holders in due course —
 (a) The matters and things mentioned in subdivisions (a), (b), and (c) of the next preceding
section; and

(b) That the instrument is at the time of his indorsement, valid and subsisting.

And, in addition, he engages that on due presentment, it shall be accepted or paid, or both, as
the case may be, 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.

Sec. 65, on the other hand, provides for the following warranties of a person negotiating an
instrument by delivery or by qualified indorsement: (a) that the instrument is genuine and in all
respects what it purports to be; (b) that he has a good title to it, and (c) that all prior parties had
capacity to contract.15 In People v. Maniego,16 this Court described the liabilities of an indorser as
follows:

Appellant's contention that as mere indorser, she may not be liable on account of the dishonor
of the checks indorsed by her, is likewise untenable. Under the law, the holder or last indorsee
of a negotiable instrument has the right "to enforce payment of the instrument for the full
amount thereof against all parties liable thereon. Among the "parties liable thereon." Is an
indorser of the instrument, i.e., "a person placing his signature upon an instrument otherwise
than as a maker, drawer or acceptor * * unless he clearly indicated by appropriate words his
intention to be bound in some other capacity." Such an indorser "who indorses without
qualification," inter alia "engages that on due presentment, * * (the instrument) shall be
accepted or paid, or both, as the case may be, 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 any subsequent indorser who may be compelled to pay it." Maniego
may also be deemed an "accommodation party" in the light of the facts, i.e., a person "who has
signed the instrument as maker, drawer, acceptor, or indorser, without receiving value thereof,
and for the purpose of lending his name to some other person." As such, she is under the law
"liable on the instrument to a holder for value, notwithstanding such holder at the time of taking
the instrument knew * * (her) to be only an accommodation party," although she has the right,
after paying the holder, to obtain reimbursement from the party accommodated, "since the
relation between them is in effect that of principal and surety, the accommodation party being
the surety.

It is thus clear that ordinarily private respondent may be held liable as an indorser of the check or
even as an accommodation party.17 However, to hold private respondent liable for the amount of the
check he deposited by the strict application of the law and without considering the attending
circumstances in the case would result in an injustice and in the erosion of the public trust in the
banking system. The interest of justice thus demands looking into the events that led to the
encashment of the check.

Petitioner asserts that by signing the withdrawal slip, private respondent "presented the opportunity
for the withdrawal of the amount in question." Petitioner relied "on the genuine signature on the
withdrawal slip, the personality of private respondent's son and the lapse of more than fifty (50) days
from date of deposit of the Continental Bank draft, without the same being returned yet." 18 We hold,
however, that the propriety of the withdrawal should be gauged by compliance with the rules thereon
that both petitioner bank and its depositors are duty-bound to observe.

In the passbook that petitioner issued to private respondent, the following rules on withdrawal of
deposits appear:
 4. Withdrawals must be made by the depositor personally but in some exceptional
circumstances, the Bank may allow withdrawal by another upon the depositor's written
authority duly authenticated; and neither a deposit nor a withdrawal will be permitted except
upon the presentation of the depositor's savings passbook, in which the amount deposited
withdrawn shall be entered only by the Bank.

5. Withdrawals may be made by draft, mail or telegraphic transfer in currency of the account at
the request of the depositor in writing on the withdrawal slip or by authenticated cable. Such
request must indicate the name of the payee/s, amount and the place where the funds are to
be paid. Any stamp, transmission and other charges related to such withdrawals shall be for
the account of the depositor and shall be paid by him/her upon demand. Withdrawals may also
be made in the form of travellers checks and in pesos. Withdrawals in the form of notes/bills
are allowed subject however, to their (availability).

6. Deposits shall not be subject to withdrawal by check, and may be withdrawal only in the
manner above provided, upon presentation of the depositor's savings passbook and with the
withdrawal form supplied by the Bank at the counter.19

Under these rules, to be able to withdraw from the savings account deposit under the Philippine
foreign currency deposit system, two requisites must be presented to petitioner bank by the person
withdrawing an amount: (a) a duly filled-up withdrawal slip, and (b) the depositor's passbook. Private
respondent admits he signed a blank withdrawal slip ostensibly in violation of Rule No. 6 requiring
that the request for withdrawal must name the payee, the amount to be withdrawn and the place
where such withdrawal should be made. That the withdrawal slip was in fact a blank one with only
private respondent's two signatures affixed on the proper spaces is buttressed by petitioner's
allegation in the instant petition that had private respondent indicated therein the person authorized to
receive the money, then Ruben Gayon, Jr. could not have withdrawn any amount. Petitioner contends
that "(I)n failing to do so (i.e., naming his authorized agent), he practically authorized any possessor
thereof to write any amount and to collect the same."20

Such contention would have been valid if not for the fact that the withdrawal slip itself indicates a
special instruction that the amount is payable to "Ramon A. de Guzman &/or Agnes C. de Guzman."
Such being the case, petitioner's personnel should have been duly warned that Gayon, who was also
employed in petitioner's Buendia Ave. Extension branch, 21 was not the proper payee of the proceeds
of the check. Otherwise, either Ramon or Agnes de Guzman should have issued another authority to
Gayon for such withdrawal. Of course, at the dorsal side of the withdrawal slip is an "authority to
withdraw" naming Gayon the person who can withdraw the amount indicated in the check. Private
respondent does not deny having signed such authority. However, considering petitioner's clear
admission that the withdrawal slip was a blank one except for private respondent's signature, the
unavoidable conclusion is that the typewritten name of "Ruben C. Gayon, Jr." was intercalated and
thereafter it was signed by Gayon or whoever was allowed by petitioner to withdraw the amount.
Under these facts, there could not have been a principal-agent relationship between private
respondent and Gayon so as to render the former liable for the amount withdrawn.

Moreover, the withdrawal slip contains a boxed warning that states: "This receipt must be signed and
presented with the corresponding foreign currency savings passbook by the depositor in person. For
withdrawals thru a representative, depositor should accomplish the authority at the back." The
requirement of presentation of the passbook when withdrawing an amount cannot be given mere lip
service even though the person making the withdrawal is authorized by the depositor to do so. This is
clear from Rule No. 6 set out by petitioner so that, for the protection of the bank's interest and as a
reminder to the depositor, the withdrawal shall be entered in the depositor's passbook. The fact that
private respondent's passbook was not presented during the withdrawal is evidenced by the entries
therein showing that the last transaction that he made with the bank was on September 3, 1984, the
date he deposited the controversial check in the amount of $2,500.00.22

In allowing the withdrawal, petitioner likewise overlooked another rule that is printed in the passbook.
Thus:

2. All deposits will be received as current funds and will be repaid in the same
manner; provided, however, that deposits of drafts, checks, money orders, etc. will be
accented as subject to collection only and credited to the account only upon receipt of the
notice of final payment. Collection charges by the Bank's foreign correspondent in effecting
such collection shall be for the account of the depositor. If the account has sufficient balance,
the collection shall be debited by the Bank against the account. If, for any reason, the
proceeds of the deposited checks, drafts, money orders, etc., cannot be collected or if the
Bank is required to return such proceeds, the provisional entry therefor made by the Bank in
the savings passbook and its records shall be deemed automatically cancelled regardless of
the time that has elapsed, and whether or not the defective items can be returned to the
depositor; and the Bank is hereby authorized to execute immediately the necessary
corrections, amendments or changes in its record, as well as on the savings passbook at the
first opportunity to reflect such cancellation. (Emphasis and underlining supplied.)

As correctly held by the Court of Appeals, in depositing the check in his name, private respondent did
not become the outright owner of the amount stated therein. Under the above rule, by depositing the
check with petitioner, private respondent was, in a way, merely designating petitioner as the collecting
bank. This is in consonance with the rule that a negotiable instrument, such as a check, whether a
manager's check or ordinary check, is not legal tender.23 As such, after receiving the deposit, under
its own rules, petitioner shall credit the amount in private respondent's account or infuse value
thereon only after the drawee bank shall have paid the amount of the check or the check has been
cleared for deposit. Again, this is in accordance with ordinary banking practices and with this Court's
pronouncement that "the collecting bank or last endorser generally suffers the loss because has the
duty to ascertain the genuineness of all prior endorsements considering that the act of presenting the
check for payment to the drawee is an assertion that the party making the presentment has done its
duty to ascertain the genuineness of the endorsements."24 The rule finds more meaning in this case
where the check involved is drawn on a foreign bank and therefore collection is more difficult than
when the drawee bank is a local one even though the check in question is a manager's check. 25

In Banco Atlantico v. Auditor General,26 Banco Atlantico, a commercial bank in Madrid, Spain, paid
the amounts represented in three (3) checks to Virginia Boncan, the finance officer of the Philippine
Embassy in Madrid. The bank did so without previously clearing the checks with the drawee bank, the
Philippine National Bank in New York, on account of the "special treatment" that Boncan received
from the personnel of Banco Atlantico's foreign department. The Court held that the encashment of
the checks without prior clearance is "contrary to normal or ordinary banking practice specially so
where the drawee bank is a foreign bank and the amounts involved were large." Accordingly, the
Court approved the Auditor General's denial of Banco Atlantico's claim for payment of the value of the
checks that was withdrawn by Boncan.

Said ruling brings to light the fact that the banking business is affected with public interest. By the
nature of its functions, a bank is under obligation to treat the accounts of its depositors "with
meticulous care, always having in mind the fiduciary nature of their relationship."27 As such, in dealing
with its depositors, a bank should exercise its functions not only with the diligence of a good father of
a family but it should do so with the highest degree of care.28
In the case at bar, petitioner, in allowing the withdrawal of private respondent's deposit, failed to
exercise the diligence of a good father of a family. In total disregard of its own rules, petitioner's
personnel negligently handled private respondent's account to petitioner's detriment. As this Court
once said on this matter:

Negligence is the omission to do something which a reasonable man, guided by those

considerations which ordinarily regulate the conduct of human affairs, would do, or the doing of
something which a prudent and reasonable man would do. The seventy-eight (78)-year-old,
yet still relevant, case of Picart v. Smith, provides that test by which to determine the existence
of negligence in a particular case which may be stated as follows: Did the defendant in doing
the alleged negligent act use that reasonable care and caution which an ordinarily prudent
person would have used in the same situation? If not, then he is guilty of negligence. The law
here in effect adopts the standard supposed to be supplied by the imaginary conduct of the
discreetpater-familias of the Roman law. The existence of negligence in a given case is not
determined by reference to the personal judgment of the actor in the situation before him. The
law considers what would be reckless, blameworthy, or negligent in the man of ordinary
intelligence and prudence and determines liability by that. 29

Petitioner violated its own rules by allowing the withdrawal of an amount that is definitely over and
above the aggregate amount of private respondent's dollar deposits that had yet to be cleared. The
bank's ledger on private respondent's account shows that before he deposited $2,500.00, private
respondent had a balance of only $750.00.30 Upon private respondent's deposit of $2,500.00 on
September 3, 1984, that amount was credited in his ledger as a deposit resulting in the corresponding
total balance of $3,250.00.31 On September 10, 1984, the amount of $600.00 and the additional
charges of $10.00 were indicated therein as withdrawn thereby leaving a balance $2,640.00. On
September 30, 1984, an interest of $11.59 was reflected in the ledger and on October 23, 1984, the
amount of $2,541.67 was entered as withdrawn with a balance of $109.92. 32 On November 19, 1984
the word "hold" was written beside the balance of $109.92.33 That must have been the time when
Reyes, petitioner's branch manager, was informed unofficially of the fact that the check deposited
was a counterfeit, but petitioner's Buendia Ave. Extension Branch received a copy of the
communication thereon from Wells Fargo Bank International in New York the following day,
November 20, 1984.34 According to Reyes, Wells Fargo Bank International handled the clearing of
checks drawn against U.S. banks that were deposited with petitioner. 35

From these facts on record, it is at once apparent that petitioner's personnel allowed the withdrawal of
an amount bigger than the original deposit of $750.00 and the value of the check deposited in the
amount of $2,500.00 although they had not yet received notice from the clearing bank in the United
States on whether or not the check was funded. Reyes' contention that after the lapse of the 35-day
period the amount of a deposited check could be withdrawn even in the absence of a clearance
thereon, otherwise it could take a long time before a depositor could make a withdrawal,36 is
untenable. Said practice amounts to a disregard of the clearance requirement of the banking system.

While it is true that private respondent's having signed a blank withdrawal slip set in motion the
events that resulted in the withdrawal and encashment of the counterfeit check, the negligence of
petitioner's personnel was the proximate cause of the loss that petitioner sustained. Proximate cause,
which is determined by a mixed consideration of logic, common sense, policy and precedent, is "that
cause, which, in natural and continuous sequence, unbroken by any efficient intervening cause,
produces the injury, and without which the result would not have occurred." 37 The proximate cause of
the withdrawal and eventual loss of the amount of $2,500.00 on petitioner's part was its personnel's
negligence in allowing such withdrawal in disregard of its own rules and the clearing requirement in
the banking system. In so doing, petitioner assumed the risk of incurring a loss on account of a forged
or counterfeit foreign check and hence, it should suffer the resulting damage.1âwphi1.nêt
WHEREFORE, the petition for review on certiorari is DENIED. The Decision of the Court of Appeals
in CA-G.R. CV No. 37392 is AFFIRMED.

SO ORDERED.

G.R. No. 166018 June 4, 2014

THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED-PHILIPPINE

BRANCHES, Petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent;

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

G.R. No. 167728

THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED-PHILIPPINE

BRANCHES, Petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

DECISION

LEONARDO-DE CASTRO, J.:

These petitions for review on certiorari1 assail the Decision2 and Resolution dated July 8, 2004 and
October 25, 2004, respectively, of the Court of Appeals in CA-G.R. SP No. 77580, as well as the
Decision3 and Resolution dated September 2, 2004 and April 4, 2005, respectively, of the Court of
Appeals in CA-G.R. SP No. 70814. The respective Decisions in the said cases similarly reversed and
set aside the decisions of the Court of Tax Appeals (CTA) in CTA Case Nos. 5951 4 and
6009,5 respectively, and dismissed the petitions of petitioner Hongkong and Shanghai Banking
Corporation Limited-Philippine Branches (HSBC). The corresponding Resolutions, on the other hand,
denied the respective motions for reconsideration of the said Decisions.

HSBC performs, among others, custodial services on behalf of its investor-clients, corporate and
individual, resident or non-resident of the Philippines, with respect to their passive investments in the
Philippines, particularly investments in shares of stocks in domestic corporations. As a custodian
bank, HSBC serves as the collection/payment agent with respect to dividends and other income
derived from its investor-clients’ passive investments.6

HSBC’s investor-clients maintain Philippine peso and/or foreign currency accounts, which are
managed by HSBC through instructions given through electronic messages. The said instructions are
standard forms known in the banking industry as SWIFT, or "Society for Worldwide Interbank
Financial Telecommunication." In purchasing shares of stock and other investment in securities, the
investor-clients would send electronic messages from abroad instructing HSBC to debit their local or
foreign currency accounts and to pay the purchase price therefor upon receipt of the securities. 7

Pursuant to the electronic messages of its investor-clients, HSBC purchased and paid Documentary
Stamp Tax (DST) from September to December 1997 and also from January to December 1998
amounting to ₱19,572,992.10 and ₱32,904,437.30, respectively, broken down as follows:
A. September to December 1997

September 1997 P 6,981,447.90

October 1997 6,209,316.60
November 1997 3,978,510.30
December 1997 2,403,717.30
Total ₱19,572,992.10

B. January to December 1998

January 1998 P 3,328,305.60

February 1998 4,566,924.90
March 1998 5,371,797.30
April 1998 4,197,235.50
May 1998 2,519,587.20
June 1998 2,301,333.00
July 1998 1,586,404.50
August 1998 1,787,359.50
September 1998 1,231,828.20
October 1998 1,303,184.40
November 1998 2,026,379.70
December 1998 2,684,097.50
Total ₱32,904,437.30

On August 23, 1999, the Bureau of Internal Revenue (BIR), thru its then Commissioner, Beethoven
Rualo, issued BIR Ruling No. 132-99 to the effect that instructions or advises from abroad on the
management of funds located in the Philippines which do not involve transfer of funds from abroad
are not subject to DST. BIR Ruling No. 132-99 reads:

Date: August 23, 1999

FERRY TOLEDO VICTORINO GONZAGA

& ASSOCIATES
G/F AFC Building, Alfaro St.
Salcedo Village, Makati
Metro Manila

Attn: Atty. Tomas C. Toledo

Tax Counsel

Gentlemen:
This refers to your letter dated July 26, 1999 requesting on behalf of your clients, the CITIBANK &
STANDARD CHARTERED BANK, for a ruling as to whether or not the electronic instructions
involving the following transactions of residents and non-residents of the Philippines with respect to
their local or foreign currency accounts are subject to documentary stamp tax under Section 181 of
the 1997 Tax Code, viz:

A. Investment purchase transactions:

An overseas client sends instruction to its bank in the Philippines to either:

(i) debit its local or foreign currency account and to pay a named recipient in the
Philippines; or

(ii) receive funds from another bank in the Philippines for deposit into its account and to
pay a named recipient in the Philippines."

The foregoing transactions are carried out under instruction from abroad and [do] not involve actual
fund transfer since the funds are already in the Philippine accounts. The instructions are in the form of
electronic messages (i.e., SWIFT MT100 or MT 202 and/or MT 521). In both cases, the payment is
against the delivery of investments purchased. The purchase of investments and the payment
comprise one single transaction. DST has already been paid under Section 176 for the investment
purchase.

B. Other transactions:

An overseas client sends an instruction to its bank in the Philippines to either:

(i) debit its local or foreign currency account and to pay a named recipient, who may be
another bank, a corporate entity or an individual in the Philippines; or

(ii) receive funds from another bank in the Philippines for deposit to its account and to
pay a named recipient, who may be another bank, a corporate entity or an individual in
the Philippines."

The above instruction is in the form of an electronic message (i.e., SWIFT MT 100 or MT 202) or
tested cable, and may not refer to any particular transaction.

The opening and maintenance by a non-resident of local or foreign currency accounts with a bank in
the Philippines is permitted by the Bangko Sentral ng Pilipinas, subject to certain conditions.

In reply, please be informed that pursuant to Section 181 of the 1997 Tax Code, which provides that –

SEC. 181. Stamp Tax Upon Acceptance of Bills of Exchange and Others.– Upon any acceptance or
payment of any bill of exchange or order for the payment of money purporting to be drawn in a foreign
country but payable in the Philippines, there shall be collected a documentary stamp tax of Thirty
centavos (P0.30) on each Two hundred pesos (₱200), or fractional part thereof, of the face value of
any such bill of exchange, or order, or Philippine equivalent of such value, if expressed in foreign
currency. (Underscoring supplied.)

a documentary stamp tax shall be imposed on any bill of exchange or order for payment purporting to
be drawn in a foreign country but payable in the Philippines.
Under the foregoing provision, the documentary stamp tax shall be levied on the instrument, i.e., a bill
of exchange or order for the payment of money, which purports to draw money from a foreign country
but payable in the Philippines. In the instant case, however, while the payor is residing outside the
Philippines, he maintains a local and foreign currency account in the Philippines from where he will
draw the money intended to pay a named recipient. The instruction or order to pay shall be made
through an electronic message, i.e., SWIFT MT 100 or MT 202 and/or MT 521. Consequently, there
is no negotiable instrument to be made, signed or issued by the payee. In the meantime, such
electronic instructions by the non-resident payor cannot be considered as a transaction per se
considering that the same do not involve any transfer of funds from abroad or from the place where
the instruction originates. Insofar as the local bank is concerned, such instruction could be considered
only as a memorandum and shall be entered as such in its books of accounts. The actual debiting of
the payor’s account, local or foreign currency account in the Philippines, is the actual transaction that
should be properly entered as such.

Under the Documentary Stamp Tax Law, the mere withdrawal of money from a bank deposit, local or
foreign currency account, is not subject to DST, unless the account so maintained is a current or
checking account, in which case, the issuance of the check or bank drafts is subject to the
documentary stamp tax imposed under Section 179 of the 1997 Tax Code. In the instant case, and
subject to the physical impossibility on the part of the payor to be present and prepare and sign an
instrument purporting to pay a certain obligation, the withdrawal and payment shall be made in cash.
In this light, the withdrawal shall not be subject to documentary stamp tax. The case is parallel to an
automatic bank transfer of local funds from a savings account to a checking account maintained by a
depositor in one bank.

Likewise, the receipt of funds from another bank in the Philippines for deposit to the payee’s account
and thereafter upon instruction of the non-resident depositor-payor, through an electronic message,
the depository bank to debit his account and pay a named recipient shall not be subject to
documentary stamp tax.

It should be noted that the receipt of funds from another local bank in the Philippines by a local
depository bank for the account of its client residing abroad is part of its regular banking transaction
which is not subject to documentary stamp tax. Neither does the receipt of funds makes the recipient
subject to the documentary stamp tax. The funds are deemed to be part of the deposits of the client
once credited to his account, and which, thereafter can be disposed in the manner he wants. The
payor-client’s further instruction to debit his account and pay a named recipient in the Philippines
does not involve transfer of funds from abroad. Likewise, as stated earlier, such debit of local or
foreign currency account in the Philippines is not subject to the documentary stamp tax under the
aforementioned Section 181 of the Tax Code.

In the light of the foregoing, this Office hereby holds that the instruction made through an electronic
message by non-resident payor-client to debit his local or foreign currency account maintained in the
Philippines and to pay a certain named recipient also residing in the Philippines is not the transaction
contemplated under Section 181 of the 1997 Tax Code. Such being the case, such electronic
instruction purporting to draw funds from a local account intended to be paid to a named recipient in
the Philippines is not subject to documentary stamp tax imposed under the foregoing Section.

This ruling is being issued on the basis of the foregoing facts as represented. However, if upon
investigation it shall be disclosed that the facts are different, this ruling shall be considered null and
void.

Very truly yours,

(Sgd.) BEETHOVEN L. RUALO
Commissioner of Internal Revenue8

With the above BIR Ruling as its basis, HSBC filed on October 8, 1999 an administrative claim for the
refund of the amount of ₱19,572,992.10 allegedly representing erroneously paid DST to the BIR for
the period covering September to December 1997.

Subsequently, on January 31, 2000, HSBC filed another administrative claim for the refund of the
amount of ₱32,904,437.30 allegedly representing erroneously paid DST to the BIR for the period
covering January to December 1998.

As its claims for refund were not acted upon by the BIR, HSBC subsequently brought the matter to
the CTA as CTA Case Nos. 5951 and 6009, respectively, in order to suspend the running of the two-
year prescriptive period.

The CTA Decisions dated May 2, 2002 in CTA Case No. 6009 and dated December 18, 2002 in CTA
Case No. 5951 favored HSBC. Respondent Commissioner of Internal Revenue was ordered to refund
or issue a tax credit certificate in favor of HSBC in the reduced amounts of ₱30,360,570.75 in CTA
Case No. 6009 and ₱16,436,395.83 in CTA Case No. 5951, representing erroneously paid DST that
have been sufficiently substantiated with documentary evidence. The CTA ruled that HSBC is entitled
to a tax refund or tax credit because Sections 180 and 181 of the 1997 Tax Code do not apply to
electronic message instructions transmitted by HSBC’s non-resident investor-clients:

The instruction made through an electronic message by a nonresident investor-client, which is to

debit his local or foreign currency account in the Philippines and pay a certain named recipient also
residing in the Philippines is not the transaction contemplated in Section 181 of the Code. In this
case, the withdrawal and payment shall be made in cash. It is parallel to an automatic bank transfer
of local funds from a savings account to a checking account maintained by a depositor in one bank.
The act of debiting the account is not subject to the documentary stamp tax under Section 181.
Neither is the transaction subject to the documentary stamp tax under Section 180 of the same Code.
These electronic message instructions cannot be considered negotiable instruments as they lack the
feature of negotiability, which, is the ability to be transferred (Words and Phrases).

These instructions are considered as mere memoranda and entered as such in the books of account
of the local bank, and the actual debiting of the payor’s local or foreign currency account in the
Philippines is the actual transaction that should be properly entered as such. 9

The respective dispositive portions of the Decisions dated May 2, 2002 in CTA Case No. 6009 and
dated December 18, 2002 in CTA Case No. 5951 read:

II. CTA Case No. 6009

WHEREFORE, in the light of all the foregoing, the instant Petition for Review is PARTIALLY
GRANTED. Respondent is hereby ORDERED to REFUND or ISSUE A TAX CREDIT CERTIFICATE
in favor of Petitioner the amount of ₱30,360,570.75 representing erroneous payment of documentary
stamp tax for the taxable year 1998.10

II. CTA Case No. 5951

WHEREFORE, in the light of the foregoing, the instant petition is hereby partially granted.
Accordingly, respondent is hereby ORDERED to REFUND, or in the alternative, ISSUE A TAX
CREDIT CERTIFICATE in favor of the petitioner in the reduced amount of ₱16,436,395.83
representing erroneously paid documentary stamp tax for the months of September 1997 to
December 1997.11

However, the Court of Appeals reversed both decisions of the CTA and ruled that the electronic
messages of HSBC’s investor-clients are subject to DST. The Court of Appeals explained:

At bar, [HSBC] performs custodial services in behalf of its investor-clients as regards their passive
investments in the Philippines mainly involving shares of stocks in domestic corporations. These
investor-clients maintain Philippine peso and/or foreign currency accounts with [HSBC]. Should they
desire to purchase shares of stock and other investments securities in the Philippines, the investor-
clients send their instructions and advises via electronic messages from abroad to [HSBC] in the form
of SWIFT MT 100, MT 202, or MT 521 directing the latter to debit their local or foreign currency
account and to pay the purchase price upon receipt of the securities (CTA Decision, pp. 1-2; Rollo,
pp. 41-42). Pursuant to Section 181 of the NIRC, [HSBC] was thus required to pay [DST] based on its
acceptance of these electronic messages – which, as [HSBC] readily admits in its petition filed before
the [CTA], were essentially orders to pay the purchases of securities made by its client-investors
(Rollo, p. 60).

Appositely, the BIR correctly and legally assessed and collected the [DST] from [HSBC] considering
that the said tax was levied against the acceptances and payments by [HSBC] of the subject
electronic messages/orders for payment. The issue of whether such electronic messages may be
equated as a written document and thus be subject to tax is beside the point. As We have already
stressed, Section 181 of the law cited earlier imposes the [DST] not on the bill of exchange or order
for payment of money but on the acceptance or payment of the said bill or order. The acceptance of a
bill or order is the signification by the drawee of its assent to the order of the drawer to pay a given
sum of money while payment implies not only the assent to the said order of the drawer and a
recognition of the drawer’s obligation to pay such aforesaid sum, but also a compliance with such
obligation (Philippine National Bank vs. Court of Appeals, 25 SCRA 693 [1968]; Prudential Bank vs.
Intermediate Appellate Court, 216 SCRA 257 [1992]). What is vital to the valid imposition of the [DST]
under Section 181 is the existence of the requirement of acceptance or payment by the drawee (in
this case, [HSBC]) of the order for payment of money from its investor-clients and that the said order
was drawn from a foreign country and payable in the Philippines. These requisites are surely present
here.

It would serve the parties well to understand the nature of the tax being imposed in the case at bar. In
Philippine Home Assurance Corporation vs. Court of Appeals (301 SCRA 443 [1999]), the Supreme
Court ruled that [DST is] levied on the exercise by persons of certain privileges conferred by law for
the creation, revision, or termination of specific legal relationships through the execution of specific
instruments, independently of the legal status of the transactions giving rise thereto. In the same
case, the High Court also declared – citing Du Pont vs. United States (300 U.S. 150, 153 [1936])

The tax is not upon the business transacted but is an excise upon the privilege, opportunity, or facility
offered at exchanges for the transaction of the business. It is an excise upon the facilities used in the
transaction of the business separate and apart from the business itself. x x x.

To reiterate, the subject [DST] was levied on the acceptance and payment made by [HSBC] pursuant
to the order made by its client-investors as embodied in the cited electronic messages, through which
the herein parties’ privilege and opportunity to transact business respectively as drawee and drawers
was exercised, separate and apart from the circumstances and conditions related to such acceptance
and subsequent payment of the sum of money authorized by the concerned drawers. Stated another
way, the [DST] was exacted on [HSBC’s] exercise of its privilege under its drawee-drawer relationship
with its client-investor through the execution of a specific instrument which, in the case at bar, is the
acceptance of the order for payment of money. The acceptance of a bill or order for payment may be
done in writing by the drawee in the bill or order itself, or in a separate instrument (Prudential Bank
vs. Intermediate Appellate Court, supra.)Here, [HSBC]’s acceptance of the orders for the payment of
money was veritably ‘done in writing in a separate instrument’ each time it debited the local or foreign
currency accounts of its client-investors pursuant to the latter’s instructions and advises sent by
electronic messages to [HSBC]. The [DST] therefore must be paid upon the execution of the specified
instruments or facilities covered by the tax – in this case, the acceptance by [HSBC] of the order for
payment of money sent by the client-investors through electronic messages. x x x.12

Hence, these petitions.

HSBC asserts that the Court of Appeals committed grave error when it disregarded the factual and
legal conclusions of the CTA. According to HSBC, in the absence of abuse or improvident exercise of
authority, the CTA’s ruling should not have been disturbed as the CTA is a highly specialized court
which performs judicial functions, particularly for the review of tax cases. HSBC further argues that
the Commissioner of Internal Revenue had already settled the issue on the taxability of electronic
messages involved in these cases in BIR Ruling No. 132-99 and reiterated in BIR Ruling No. DA-280-
2004.13

The Commissioner of Internal Revenue, on the other hand, claims that Section 181 of the 1997 Tax
Code imposes DST on the acceptance or payment of a bill of exchange or order for the payment of
money. The DST under Section 18 of the 1997 Tax Code is levied on HSBC’s exercise of a privilege
which is specifically taxed by law. BIR Ruling No. 132-99 is inconsistent with prevailing law and long
standing administrative practice, respondent is not barred from questioning his own revenue ruling.
Tax refunds like tax exemptions are strictly construed against the taxpayer.14

The Court finds for HSBC.

The Court agrees with the CTA that the DST under Section 181 of the Tax Code is levied on the
acceptance or payment of "a bill of exchange purporting to be drawn in a foreign country but payable
in the Philippines" and that "a bill of exchange is an unconditional order in writing addressed by one
person to another, signed by the person giving it, requiring the person to whom it is addressed to pay
on demand or at a fixed or determinable future time a sum certain in money to order or to bearer." A
bill of exchange is one of two general forms of negotiable instruments under the Negotiable
Instruments Law.15

The Court further agrees with the CTA that the electronic messages of HSBC’s investor-clients
containing instructions to debit their respective local or foreign currency accounts in the Philippines
and pay a certain named recipient also residing in the Philippines is not the transaction contemplated
under Section 181 of the Tax Code as such instructions are "parallel to an automatic bank transfer of
local funds from a savings account to a checking account maintained by a depositor in one bank."
The Court favorably adopts the finding of the CTA that the electronic messages "cannot be
considered negotiable instruments as they lack the feature of negotiability, which, is the ability to be
transferred" and that the said electronic messages are "mere memoranda" of the transaction
consisting of the "actual debiting of the [investor-client-payor’s] local or foreign currency account in
the Philippines" and "entered as such in the books of account of the local bank," HSBC.16

More fundamentally, the instructions given through electronic messages that are subjected to DST in
these cases are not negotiable instruments as they do not comply with the requisites of negotiability
under Section 1 of the Negotiable Instruments Law, which provides:
Sec. 1. Form of negotiable instruments.– An instrument to be negotiable must conform to the
following requirements:

(a) It must be in writing and signed by the maker or drawer;

(b) Must contain an unconditional promise or order to pay a sum certain in money;

(c) Must be payable on demand, or at a fixed or determinable future time;

(d) Must be payable to order or to bearer; and

(e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated
therein with reasonable certainty.

The electronic messages are not signed by the investor-clients as supposed drawers of a bill of
exchange; they do not contain an unconditional order to pay a sum certain in money as the payment
is supposed to come from a specific fund or account of the investor-clients; and, they are not payable
to order or bearer but to a specifically designated third party. Thus, the electronic messages are not
bills of exchange. As there was no bill of exchange or order for the payment drawn abroad and made
payable here in the Philippines, there could have been no acceptance or payment that will trigger the
imposition of the DST under Section 181 of the Tax Code.

Section 181 of the 1997 Tax Code, which governs HSBC’s claim for tax refund for taxable year 1998
subject of G.R. No. 167728, provides:

SEC. 181. Stamp Tax Upon Acceptance of Bills of Exchange and Others. – Upon any acceptance or
payment of any bill of exchange or order for the payment of money purporting to be drawn in a foreign
country but payable in the Philippines, there shall be collected a documentary stamp tax of Thirty
centavos (P0.30) on each Two hundred pesos (₱200), or fractional part thereof, of the face value of
any such bill of exchange, or order, or the Philippine equivalent of such value, if expressed in foreign
currency. (Emphasis supplied.)

Section 230 of the 1977 Tax Code, as amended, which governs HSBC’s claim for tax refund for DST
paid during the period September to December 1997 and subject of G.R. No. 166018, is worded
exactly the same as its counterpart provision in the 1997 Tax Code quoted above.

The origin of the above provision is Section 117 of the Tax Code of 1904,17 which provided:
SECTION 117. The acceptor or acceptors of any bill of exchange or order for the payment of any sum
of money drawn or purporting to be drawn in any foreign country but payable in the Philippine Islands,
shall, before paying or accepting the same, place thereupon a stamp in payment of the tax upon such
document in the same manner as is required in this Act for the stamping of inland bills of exchange or
promissory notes, and no bill of exchange shall be paid nor negotiated until such stamp shall have
been affixed thereto.18 (Emphasis supplied.)

It then became Section 30(h) of the 1914 Tax Code19:

SEC. 30. Stamp tax upon documents and papers. – Upon documents, instruments, and papers, and
upon acceptances, assignments, sales, and transfers of the obligation, right, or property incident
thereto documentary taxes for and in respect of the transaction so had or accomplished shall be paid
as hereinafter prescribed, by the persons making, signing, issuing, accepting, or transferring the
same, and at the time such act is done or transaction had:
 xxxx

(h) Upon any acceptance or payment upon acceptance of any bill of exchange or order for the
payment of money purporting to be drawn in a foreign country but payable in the Philippine Islands,
on each two hundred pesos, or fractional part thereof, of the face value of any such bill of exchange
or order, or the Philippine equivalent of such value, if expressed in foreign currency, two centavos[.]
(Emphasis supplied.)

It was implemented by Section 46 in relation to Section 39 of Revenue Regulations No. 26, 20 as

amended:

SEC. 39. A Bill of Exchange is one that "denotes checks, drafts, and all other kinds of orders for the
payment of money, payable at sight or on demand, or after a specific period after sight or from a
stated date."

SEC. 46. Bill of Exchange, etc. – When any bill of exchange or order for the payment of money drawn
in a foreign country but payable in this country whether at sight or on demand or after a specified
period after sight or from a stated date, is presented for acceptance or payment, there must be affixed
upon acceptance or payment of documentary stamp equal to P0.02 for each ₱200 or fractional part
thereof. (Emphasis supplied.)

It took its present form in Section 218 of the Tax Code of 1939, 21 which provided:

SEC. 218. Stamp Tax Upon Acceptance of Bills of Exchange and Others. – Upon any acceptance or
payment of any bill of exchange or order for the payment of money purporting to be drawn in a foreign
country but payable in the Philippines, there shall be collected a documentary stamp tax of four
centavos on each two hundred pesos, or fractional part thereof, of the face value of any such bill of
exchange or order, or the Philippine equivalent of such value, if expressed in foreign currency.
(Emphasis supplied.)

It then became Section 230 of the 1977 Tax Code,22 as amended by Presidential Decree Nos. 1457
and 1959,which, as stated earlier, was worded exactly as Section 181 of the current Tax Code:

SEC. 230. Stamp tax upon acceptance of bills of exchange and others. – Upon any acceptance or
payment of any bill of exchange or order for the payment of money purporting to be drawn in a foreign
country but payable in the Philippines, there shall be collected a documentary stamp tax of thirty
centavos on each two hundred pesos, or fractional part thereof, of the face value of any such bill of
exchange, or order, or the Philippine equivalent of such value, if expressed in foreign currency.
(Emphasis supplied.)

The pertinent provision of the present Tax Code has therefore remained substantially the same for
the past one hundred years.1âwphi1 The identical text and common history of Section 230 of the
1977 Tax Code, as amended, and the 1997 Tax Code, as amended, show that the law imposes DST
on either (a) the acceptance or (b) the payment of a foreign bill of exchange or order for the payment
of money that was drawn abroad but payable in the Philippines.

DST is an excise tax on the exercise of a right or privilege to transfer obligations, rights or properties
incident thereto.23 Under Section 173 of the 1997 Tax Code, the persons primarily liable for the
payment of the DST are those (1) making, (2) signing, (3) issuing, (4) accepting, or (5) transferring
the taxable documents, instruments or papers.24
In general, DST is levied on the exercise by persons of certain privileges conferred by law for the
creation, revision, or termination of specific legal relationships through the execution of specific
instruments. Examples of such privileges, the exercise of which, as effected through the issuance of
particular documents, are subject to the payment of DST are leases of lands, mortgages, pledges and
trusts, and conveyances of real property.25

As stated above, Section 230 of the 1977 Tax Code, as amended, now Section 181 of the 1997 Tax
Code, levies DST on either (a) the acceptance or (b) the payment of a foreign bill of exchange or
order for the payment of money that was drawn abroad but payable in the Philippines. In other words,
it levies DST as an excise tax on the privilege of the drawee to accept or pay a bill of exchange or
order for the payment of money, which has been drawn abroad but payable in the Philippines, and on
the corresponding privilege of the drawer to have acceptance of or payment for the bill of exchange or
order for the payment of money which it has drawn abroad but payable in the Philippines.

Acceptance applies only to bills of exchange.26 Acceptance of a bill of exchange has a very definite
meaning in law.27 In particular, Section 132 of the Negotiable Instruments Law provides:

Sec. 132. Acceptance; how made, by and so forth. – The acceptance of a bill [of exchange28] is the
signification by the drawee of his assent to the order of the drawer. The acceptance must be in writing
and signed by the drawee. It must not express that the drawee will perform his promise by any other
means than the payment of money.

Under the law, therefore, what is accepted is a bill of exchange, and the acceptance of a bill of
exchange is both the manifestation of the drawee’s consent to the drawer’s order to pay money and
the expression of the drawee’s promise to pay. It is "the act by which the drawee manifests his
consent to comply with the request contained in the bill of exchange directed to him and it
contemplates an engagement or promise to pay." 29 Once the drawee accepts, he becomes an
acceptor.30 As acceptor, he engages to pay the bill of exchange according to the tenor of his
acceptance.31

Acceptance is made upon presentment of the bill of exchange, or within 24 hours after such
presentment.32Presentment for acceptance is the production or exhibition of the bill of exchange to
the drawee for the purpose of obtaining his acceptance. 33

Presentment for acceptance is necessary only in the instances where the law requires it. 34 In the
instances where presentment for acceptance is not necessary, the holder of the bill of exchange can
proceed directly to presentment for payment.

Presentment for payment is the presentation of the instrument to the person primarily liable for the
purpose of demanding and obtaining payment thereof. 35

Thus, whether it be presentment for acceptance or presentment for payment, the negotiable
instrument has to be produced and shown to the drawee for acceptance or to the acceptor for
payment.

Revenue Regulations No. 26 recognizes that the acceptance or payment (of bills of exchange or
orders for the payment of money that have been drawn abroad but payable in the Philippines) that is
subjected to DST under Section 181 of the 1997 Tax Code is done after presentment for acceptance
or presentment for payment, respectively. In other words, the acceptance or payment of the subject
bill of exchange or order for the payment of money is done when there is presentment either for
acceptance or for payment of the bill of exchange or order for the payment of money.
Applying the above concepts to the matter subjected to DST in these cases, the electronic messages
received by HSBC from its investor-clients abroad instructing the former to debit the latter's local and
foreign currency accounts and to pay the purchase price of shares of stock or investment in securities
do not properly qualify as either presentment for acceptance or presentment for payment. There
being neither presentment for acceptance nor presentment for payment, then there was no
acceptance or payment that could have been subjected to DST to speak of.

Indeed, there had been no acceptance of a bill of exchange or order for the payment of money on the
part of HSBC. To reiterate, there was no bill of exchange or order for the payment drawn abroad and
made payable here in the Philippines. Thus, there was no acceptance as the electronic messages did
not constitute the written and signed manifestation of HSBC to a drawer's order to pay money. As
HSBC could not have been an acceptor, then it could not have made any payment of a bill of
exchange or order for the payment of money drawn abroad but payable here in the Philippines. In
other words, HSBC could not have been held liable for DST under Section 230 of the 1977 Tax Code,
as amended, and Section 181 of the 1997 Tax Code as it is not "a person making, signing, issuing,
accepting, or, transferring" the taxable instruments under the said provision. Thus, HSBC erroneously
paid DST on the said electronic messages for which it is entitled to a tax refund.

WHEREFORE, the petitions are hereby GRANTED and the Decisions dated May 2, 2002 in CTA
Case No. 6009 and dated December 18, 2002 in CT A Case No. 5951 of the Court of Tax Appeals
are REINSTATED.

SO ORDERED.