Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. L-41764 December 19, 1980

NEW PACIFIC TIMBER & SUPPLY COMPANY, INC., petitioner,

vs.
HON. ALBERTO V. SENERIS, RICARDO A. TONG and EX-OFFICIO SHERIFF HAKIM S.
ABDULWAHID, respondents.

CONCEPCION JR., J.:

A petition for certiorari with preliminary injunction to annul and/or modify the order of the Court of
First Instance of Zamboanga City (Branch ii) dated August 28, 1975 denying petitioner's Ex-
Parte Motion for Issuance of Certificate Of Satisfaction Of Judgment.

Herein petitioner is the defendant in a complaint for collection of a sum of money filed by the private
respondent. 1On July 19, 1974, a compromise judgment was rendered by the respondent Judge in
accordance with an amicable settlement entered into by the parties the terms and conditions of
which, are as follows:

(1) That defendant will pay to the plaintiff the amount of Fifty Four Thousand Five
Hundred Pesos (P54,500.00) at 6% interest per annum to be reckoned from August
25, 1972;

(2) That defendant will pay to the plaintiff the amount of Six Thousand Pesos
(P6,000.00) as attorney's fees for which P5,000.00 had been acknowledged received
by the plaintiff under Consolidated Bank and Trust Corporation Check No. 16-135022
amounting to P5,000.00 leaving a balance of One Thousand Pesos (P1,000.00);

(3) That the entire amount of P54,500.00 plus interest, plus the balance of P1,000.00
for attorney's fees will be paid by defendant to the plaintiff within five months from
today, July 19, 1974; and

(4) Failure one the part of the defendant to comply with any of the above-conditions,
a writ of execution may be issued by this Court for the satisfaction of the obligation. 2

For failure of the petitioner to comply with his judgment obligation, the respondent Judge, upon
motion of the private respondent, issued an order for the issuance of a writ of execution on
December 21, 1974. Accordingly, writ of execution was issued for the amount of P63,130.00
pursuant to which, the Ex-Officio Sheriff levied upon the following personal properties of the
petitioner, to wit:

(1) Unit American Lathe 24

(1) Unit American Lathe 18 Cracker Wheeler

 (1) Unit Rockford Shaper 24

and set the auction sale thereof on January 15, 1975. However, prior to January 15, 1975, petitioner
deposited with the Clerk of Court, Court of First Instance, Zamboanga City, in his capacity as Ex-
Officio Sheriff of Zamboanga City, the sum of P63,130.00 for the payment of the judgment
obligation, consisting of the following:

1. P50.000.00 in Cashier's Check No. S-314361 dated January 3, 1975 of the

Equitable Banking Corporation; and

2. P13,130.00 incash. 3

In a letter dated January 14, 1975, to the Ex-Officio Sheriff, 4 private respondent through counsel,
refused to accept the check as well as the cash deposit. In the 'same letter, private respondent
requested the scheduled auction sale on January 15, 1975 to proceed if the petitioner cannot
produce the cash. However, the scheduled auction sale at 10:00 a.m. on January 15, 1975 was
postponed to 3:00 o'clock p.m. of the same day due to further attempts to settle the case. Again, the
scheduled auction sale that afternoon did not push through because of a last ditch attempt to
convince the private respondent to accept the check. The auction sale was then postponed on the
following day, January 16, 1975 at 10:00 o'clock a.m. 5 At about 9:15 a.m., on January 16, 1975, a
certain Mr. Taedo representing the petitioner appeared in the office of the Ex-Officio Sheriff and the
latter reminded Mr. Taedo that the auction sale would proceed at 10:00 o'clock. At 10:00 a.m., Mr.
Taedo and Mr. Librado, both representing the petitioner requested the Ex-Officio Sheriff to give
them fifteen minutes within which to contract their lawyer which request was granted. After Mr.
Taedo and Mr. Librado failed to return, counsel for private respondent insisted that the sale must
proceed and the Ex-Officio Sheriff proceeded with the auction sale. 6 In the course of the
proceedings, Deputy Sheriff Castro sold the levied properties item by item to the private respondent
as the highest bidder in the amount of P50,000.00. As a result thereof, the Ex-Officio Sheriff
declared a deficiency of P13,130.00. 7 Thereafter, on January 16, 1975, the Ex-Officio Sheriff issued
a "Sheriff's Certificate of Sale" in favor of the private respondent, Ricardo Tong, married to Pascuala
Tong for the total amount of P50,000.00 only. 8 Subsequently, on January 17, 1975, petitioner filed
an ex-parte motion for issuance of certificate of satisfaction of judgment. This motion was denied by
the respondent Judge in his order dated August 28, 1975. In view thereof, petitioner now questions
said order by way of the present petition alleging in the main that said respondent Judge capriciously
and whimsically abused his discretion in not granting the motion for issuance of certificate of
satisfaction of judgment for the following reasons: (1) that there was already a full satisfaction of the
judgment before the auction sale was conducted with the deposit made to the Ex-Officio Sheriff in
the amount of P63,000.00 consisting of P50,000.00 in Cashier's Check and P13,130.00 in cash; and
(2) that the auction sale was invalid for lack of proper notice to the petitioner and its counsel when
the Ex-Officio Sheriff postponed the sale from June 15, 1975 to January 16, 1976 contrary to Section
24, Rule 39 of the Rules of Court. On November 10, 1975, the Court issued a temporary restraining
order enjoining the respondent Ex-Officio Sheriff from delivering the personal properties subject of
the petition to Ricardo A. Tong in view of the issuance of the "Sheriff Certificate of Sale."

We find the petition to be impressed with merit.

The main issue to be resolved in this instance is as to whether or not the private respondent can
validly refuse acceptance of the payment of the judgment obligation made by the petitioner
consisting of P50,000.00 in Cashier's Check and P13,130.00 in cash which it deposited with the Ex-
Officio Sheriff before the date of the scheduled auction sale. In upholding private respondent's claim
that he has the right to refuse payment by means of a check, the respondent Judge cited the
following:
Section 63 of the Central Bank Act:

Sec. 63. Legal Character. Checks representing deposit money do not have legal
tender power and their acceptance in payment of debts, both public and private, is at
the option of the creditor, Provided, however, that a check which has been cleared
and credited to the account of the creditor shall be equivalent to a delivery to the
creditor in cash in an amount equal to the amount credited to his account.

Article 1249 of the New Civil Code:

Art. 1249. The payment of debts in money shall be made in the currency
stipulated, and if it is not possible to deliver such currency, then in the currency which
is legal tender in the Philippines.

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.

Likewise, the respondent Judge sustained the contention of the private respondent that he has the
right to refuse payment of the amount of P13,130.00 in cash because the said amount is less than
the judgment obligation, citing the following Article of the New Civil Code:

Art. 1248. Unless there is an express stipulation to that effect, the creditor cannot be
compelled partially to receive the presentations in which the obligation consists.
Neither may the debtor be required to make partial payment.

However, when the debt is in part liquidated and in part unliquidated, the creditor
may demand and the debtor may effect the payment of the former without waiting for
the liquidation of the latter.

It is to be emphasized in this connection that the check deposited by the petitioner in the amount of
P50,000.00 is not an ordinary check but a Cashier's Check of the Equitable Banking Corporation, a
bank of good standing and reputation. As testified to by the Ex-Officio Sheriff with whom it has been
deposited, it is a certified crossed check. 9It is a well-known and accepted practice in the business
sector that a Cashier's Check is deemed as cash. Moreover, since the said check had been certified
by the drawee bank, by the certification, the funds represented by the check are transferred from the
credit of the maker to that of the payee or holder, and for all intents and purposes, the latter
becomes the depositor of the drawee bank, with rights and duties of one in such situation. 10 Where
a check is certified by the bank on which it is drawn, the certification is equivalent to
acceptance.11 Said certification "implies that the check is drawn upon sufficient funds in the hands of
the drawee, that they have been set apart for its satisfaction, and that they shall be so applied
whenever the check is presented for payment. It is an understanding that the check is good then,
and shall continue good, and this agreement is as binding on the bank as its notes in circulation, a
certificate of deposit payable to the order of the depositor, or any other obligation it can assume. The
object of certifying a check, as regards both parties, is to enable the holder to use it as
money." 12When the holder procures the check to be certified, "the check operates as an assignment
of a part of the funds to the creditors." 13 Hence, the exception to the rule enunciated under Section
63 of the Central Bank Act to the effect "that a check which has been cleared and credited to the
account of the creditor shall be equivalent to a delivery to the creditor in cash in an amount equal to
the amount credited to his account" shall apply in this case. Considering that the whole amount
deposited by the petitioner consisting of Cashier's Check of P50,000.00 and P13,130.00 in cash
covers the judgment obligation of P63,000.00 as mentioned in the writ of execution, then, We see no
valid reason for the private respondent to have refused acceptance of the payment of the obligation
in his favor. The auction sale, therefore, was uncalled for. Furthermore, it appears that on January
17, 1975, the Cashier's Check was even withdrawn by the petitioner and replaced with cash in the
corresponding amount of P50,000.00 on January 27, 1975 pursuant to an agreement entered into by
the parties at the instance of the respondent Judge. However, the private respondent still refused to
receive the same. Obviously, the private respondent is more interested in the levied properties than
in the mere satisfaction of the judgment obligation. Thus, petitioner's motion for the issuance of a
certificate of satisfaction of judgment is clearly meritorious and the respondent Judge gravely abused
his discretion in not granting the same under the circumstances.

In view of the conclusion reached in this instance, We find no more need to discuss the ground
relied in the petition.

It is also contended by the private respondent that Appeal and not a special civil action for certiorari
is the proper remedy in this case, and that since the period to appeal from the decision of the
respondent Judge has already expired, then, the present petition has been filed out of time. The
contention is untenable. The decision of the respondent Judge in Civil Case No. 250 (166) has long
become final and executory and so, the same is not being questioned herein. The subject of the
petition at bar as having been issued in grave abuse of discretion is the order dated August 28, 1975
of the respondent Judge which was merely issued in execution of the said decision. Thus, even
granting that appeal is open to the petitioner, the same is not an adequate and speedy remedy for
the respondent Judge had already issued a writ of execution. 14

WHEREFORE, in view of all the foregoing, judgment is hereby rendered:

1. Declaring as null and void the order of the respondent Judge dated August 28, 1975;

2. Declaring as null and void the auction sale conducted on January 16, 1975 and the certificate of
sale issued pursuant thereto;

3. Ordering the private respondent to accept the sum of P63,130.00 under deposit as payment of the
judgment obligation in his favor;

4. Ordering the respondent Judge and respondent Ex-Officio Sheriff to release the levied properties
to the herein petitioner.

The temporary restraining order issued is hereby made permanent.

Costs against the private respondent.

SO ORDERED.

Barredo (Chairman), Aquino, Abad Santos and De Castro, JJ., concur.

Footnotes
l Civil Case No. 250 (1669), Court of First Instance, Zamboanga City, entitled
"Ricardo A. Tong, Plaintiff, versus New Pacific Timber and Supply, Co., Inc.,
Defendant."

2 pp. 14-15, rollo.

3 p. 16, rollo.

4 Exhibit "D".

5 p. 4, rollo.

6 pp. 5-6, rollo.

7 p. 6, rollo.

8 Exhibit "C", see Decision, p. 19, rollo.

9 p. 35, t.s.n., May 24, 1975.

10 Gregorio Araneta, Inc. vs. Paz Tuazon de Paterno and Jose Vidal, L-2886,
August 22, 1952, 49 O.G. No. 1, p. 59.

11 Section 187. Certification of check; effect of. Where a check is certified by the
bank on which it is drawn, the certification is equivalent to acceptance. (Negotiable
Instruments Law)

12 PNB vs. Nat. City Bank of New York, 63 Phil. 711, 718-719.

13 PNB vs, Nat. City Bank of New York, supra, 711-717; Sec. 189. When check
operates as an assignment. A cheek of itself does not operate as an assignment
of any part of the funds to the credit of the drawer with the bank. and the bank, is not
liable to the holder unless and until it accepts or certifies it. (Negotiable Instruments
Law) [Emphasis supplied]

14 Matute vs. Court of Appeals, 26 SCRA 799, citing Vda. de Saludes vs. Pajarillo,
78 Phil. 754, Woodcraft Works, Ltd. vs. Moscoso, 92 Phil. 1021 and Liwanag vs.
Castillo, 106 Phil. 375.
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 93048 March 3, 1994

BATAAN CIGAR AND CIGARETTE FACTORY, INC., petitioner,

vs.
THE COURT OF APPEALS and STATE INVESTMENT HOUSE, INC., respondents.

Teresita Gandiongco Oledan for petitioner.

Acaban & Sabado for private respondent.

NOCON, J.:

For our review is the decision of the Court of Appeals in the case entitled "State Investment House,
Inc. v. Bataan Cigar & Cigarette Factory Inc.,"1 affirming the decision of the Regional Trial Court2 in a
complaint filed by the State Investment House, Inc. (hereinafter referred to as SIHI) for collection on
three unpaid checks issued by Bataan Cigar & Cigarette Factory, Inc. (hereinafter referred to as
BCCFI). The foregoing decisions unanimously ruled in favor of SIHI, the private respondent in this
case.

Emanating from the records are the following facts. Petitioner, Bataan Cigar & Cigarette Factory, Inc.
(BCCFI), a corporation involved in the manufacturing of cigarettes, engaged one of its suppliers,
King Tim Pua George (herein after referred to as George King), to deliver 2,000 bales of tobacco
leaf starting October 1978. In consideration thereof, BCCFI, on July 13, 1978 issued crossed checks
post dated sometime in March 1979 in the total amount of P820,000.00.3

Relying on the supplier's representation that he would complete delivery within three months from
December 5, 1978, petitioner agreed to purchase additional 2,500 bales of tobacco leaves, despite
the supplier's failure to deliver in accordance with their earlier agreement. Again petitioner issued
post dated crossed checks in the total amount of P1,100,000.00, payable sometime in September
1979.4

During these times, George King was simultaneously dealing with private respondent SIHI. On July
19, 1978, he sold at a discount check TCBT 5518265 bearing an amount of P164,000.00, post dated
March 31, 1979, drawn by petitioner, naming George King as payee to SIHI. On December 19 and
26, 1978, he again sold to respondent checks TCBT Nos. 608967 & 608968,6 both in the amount of
P100,000.00, post dated September 15 & 30, 1979 respectively, drawn by petitioner in favor of
George King.

In as much as George King failed to deliver the bales of tobacco leaf as agreed despite petitioner's
demand, BCCFI issued on March 30, 1979, a stop payment order on all checks payable to George
King, including check TCBT 551826. Subsequently, stop payment was also ordered on checks
TCBT Nos. 608967 & 608968 on September 14 & 28, 1979, respectively, due to George King's
failure to deliver the tobacco leaves.

Efforts of SIHI to collect from BCCFI having failed, it instituted the present case, naming only BCCFI
as party defendant. The trial court pronounced SIHI as having a valid claim being a holder in due
course. It further said that the non-inclusion of King Tim Pua George as party defendant is
immaterial in this case, since he, as payee, is not an indispensable party.

The main issue then is whether SIHI, a second indorser, a holder of crossed checks, is a holder in
due course, to be able to collect from the drawer, BCCFI.

The Negotiable Instruments Law states what constitutes a holder in due course, thus:

Sec. 52 A holder in due course is a holder who has taken the instrument under the
following conditions:

(a) That it is complete and regular upon its face;

(b) That he became the holder of it before it was overdue, and without notice that it
had been previously dishonored, if such was the fact;

(c) That he took it in good faith and for value;

(d) That at the time it was negotiated to him he had no notice of any infirmity in the
instrument or defect in the title of the person negotiating it.

Section 59 of the NIL further states that every holder is deemed prima facie a holder in due course.
However, when it is shown that the title of any person who has negotiated the instrument was
defective, the burden is on the holder to prove that he or some person under whom he claims,
acquired the title as holder in due course.

The facts in this present case are on all fours to the case of State Investment House, Inc. (the very
respondent in this case) v. Intermediate Appellate Court 7 wherein we made a discourse on the
effects of crossing of checks.

As preliminary, a check is defined by law as a bill of exchange drawn on a bank payable on

demand. 8 There are a variety of checks, the more popular of which are the memorandum check,
cashier's check, traveler's check and crossed check. Crossed check is one where two parallel lines
are drawn across its face or across a corner thereof. It may be crossed generally or specially.

A check is crossed specially when the name of a particular banker or a company is written between
the parallel lines drawn. It is crossed generally when only the words "and company" are written or
nothing is written at all between the parallel lines. It may be issued so that the presentment can be
made only by a bank. Veritably the Negotiable Instruments Law (NIL) does not mention "crossed
checks," although Article 541 9 of the Code of Commerce refers to such instruments.

According to commentators, the negotiability of a check is not affected by its being crossed, whether
specially or generally. It may legally be negotiated from one person to another as long as the one
who encashes the check with the drawee bank is another bank, or if it is specially crossed, by the
bank mentioned between the parallel lines. 10This is specially true in England where the Negotiable
Instrument Law originated.
In the Philippine business setting, however, we used to be beset with bouncing checks, forging of
checks, and so forth that banks have become quite guarded in encashing checks, particularly those
which name a specific payee. Unless one is a valued client, a bank will not even accept second
indorsements on checks.

In order to preserve the credit worthiness of checks, jurisprudence has pronounced that crossing of
a check should have the following effects: (a) the check may not be encashed but only deposited in
the bank; (b) the check may be negotiated only once to one who has an account with a bank; (c)
and the act of crossing the check serves as warning to the holder that the check has been issued for
a definite purpose so that he must inquire if he has received the check pursuant to that purpose,
otherwise, he is not a holder in due course. 11

The foregoing was adopted in the case of SIHI v. IAC, supra. In that case, New Sikatuna Wood
Industries, Inc. also sold at a discount to SIHI three post dated crossed checks, issued by Anita
Pea Chua naming as payee New Sikatuna Wood Industries, Inc. Ruling that SIHI was not a holder
in due course, we then said:

The three checks in the case at bar had been crossed generally and issued payable
to New Sikatuna Wood Industries, Inc. which could only mean that the drawer had
intended the same for deposit only by the rightful person, i.e. the payee named
therein. Apparently, it was not the payee who presented the same for payment and
therefore, there was no proper presentment, and the liability did not attach to the
drawer. Thus, in the absence of due presentment, the drawer did not become liable.
Consequently, no right of recourse is available to petitioner (SIHI) against the drawer
of the subject checks, private respondent wife (Anita), considering that petitioner is
not the proper party authorized to make presentment of the checks in question.

xxx xxx xxx

That the subject checks had been issued subject to the condition that private
respondents (Anita and her husband) on due date would make the back up deposit
for said checks but which condition apparently was not made, thus resulting in the
non-consummation of the loan intended to be granted by private respondents to New
Sikatuna Wood Industries, Inc., constitutes a good defense against petitioner who is
not a holder in due course. 12

It is then settled that crossing of checks should put the holder on inquiry and upon him devolves the
duty to ascertain the indorser's title to the check or the nature of his possession. Failing in this
respect, the holder is declared guilty of gross negligence amounting to legal absence of good faith,
contrary to Sec. 52(c) of the Negotiable Instruments Law, 13 and as such the consensus of authority
is to the effect that the holder of the check is not a holder in due course.

In the present case, BCCFI's defense in stopping payment is as good to SIHI as it is to George King.
Because, really, the checks were issued with the intention that George King would supply BCCFI
with the bales of tobacco leaf. There being failure of consideration, SIHI is not a holder in due
course. Consequently, BCCFI cannot be obliged to pay the checks.

The foregoing does not mean, however, that respondent could not recover from the checks. The
only disadvantage of a holder who is not a holder in due course is that the instrument is subject to
defenses as if it were
non-negotiable. 14 Hence, respondent can collect from the immediate indorser, in this case, George
King.
WHEREFORE, finding that the court a quo erred in the application of law, the instant petition is
hereby GRANTED. The decision of the Regional Trial Court as affirmed by the Court of Appeals is
hereby REVERSED. Cost against private respondent.

SO ORDERED.

Narvasa, C.J., Regalado and Puno, JJ., concur.

Padilla, J., took no part.

#Footnotes

1 CA-G.R. CV No. 03032, Justice Jorge R. Coquia, ponente, Justices Josue N.

Bellosillo and Venancio D. Aldecoa, Jr., concurring, November 13, 1987.

2 Judge Agusto E. Villarin, presiding, Branch XL, National Capital Region, Manila.

3 Exhibit "1", Folder of Exhibits, p. 11.

4 Exhibit "4", Folder of Exhibits, p. 14.

5 Annex "A", Folder of Exhibits, p. 3.

6 Annexes "B" and "C", Folder of Exhibits, pp. 4-5.

7 G.R. No. 72764, 175 SCRA 310.

8 Sec. 185, Negotiable Instruments Law.

9 Article 541 -- The maker of any legal holder of a check shall be entitled to indicate
therein that it be paid to a certain banker or institution, which he shall do by writing
across the face the name of said banker or institution, or only the words "and
company".

10 CAMPOS AND LOPEZ-CAMPOS, Negotiable Instruments Law, p. 574-575;

AGBAYANI, AGUEDO, Commercial Laws of the Philippines, Vol. 1, 1987 Ed., p. 446.

11 Ocampo v. Gatchalian, G.R. No. L-15126, 3 SCRA 603 (1961); Associated Bank
v. Court of Appeals, G.R. No. 89802, 208 SCRA 465; SIHI v. IAC, supra.

12 Id. at pp. 316-317.

13 quoted supra.

14 Chan Wan v. Tan Kim and Chen So, L-15380, 109 Phil., 706 (1960); SIHI v.
IAC, supra.
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 96160 June 17, 1992

STELCO MARKETING CORPORATION, petitioner,

vs.
HON. COURT OF APPEALS and STEELWELD CORPORATION OF THE PHILIPPINES,
INC., respondent.

NARVASA, c.J.:

Stelco Marketing Corporation is engaged in the distribution and sale to the public of structural steel
bars. 1 On seven (7) different occasions in September and October, 1980, it sold to RYL
Construction, Inc. quantities of steels bars of various sizes and rolls of G.I. wire. These bars and wire
were delivered at different places at the indication of RYL Construction, Inc. The aggregate price for
the purchases was P126,859.61.

Although the corresponding invoices issued by STELCO stipulated that RYL pay "COD" (cash on
delivery), the latter made no payments for the construction materials thus ordered and delivered
despite insistent demands for payment by the former.

On April 4, 1981, RYL gave to Armstrong, Industries described by STELCO as its "sister
corporation" and "manufacturing arm" 2 a check drawn against Metrobank in the amount of
P126,129.86, numbered 765380 and dated April 4, 1981. That check was a company check of
another corporation, Steelweld Corporation of the Philippines, signed by its President, Peter Rafael
Limson, and its Vice-President, Artemio Torres.

The check was issued by Limson at the behest of his friend, Romeo Y. Lim, President of RYL.
Romeo Lim had asked Limson, for financial assistance, and the latter had agreed to give Lim a
check only by way of accommodation, "only as guaranty but not to pay for anything." 3 Why the
check was made out in the amount of P126,129.86 is not explained. Anyway, the check was actually
issued in said amount of P126, 129.86, and as already stated, was given by R.Y. Lim to Armstrong
Industries, 4 in payment of an obligation. When the latter deposited the check at its bank, it was
dishonored because "drawn against insufficient funds." 5 When so deposited, the check bore two(2)
endorsements, that of "RYL Construction," followed by that of "Armstrong Industries." 6

On account of the dishonor of Metrobank Check No. 765380, and on complaint of Armstrong
Industries (through a Mr. Young), Rafael Limson and Artemio Torres were charged in the Regional
Trial Court of Manila with a violation of Batas Pambansa Bilang 22. 7 They were acquitted in a
decision rendered on June 28, 1984 "on the ground that the check in question was not issued by the
drawer "to apply on account for value," it being merely for accommodation purposes. 8 The judgment
however conditioned the acquittal with the following pronouncement:
 This is not however to release Steelweld Corporation from its liability under Sec. 29
of the Negotiable Instruments Law for having issued it for the accommodation of
Romeo Lim.

Eleven months or so later and some four (4) years after issuance of the check in question in
May, 1985, STELCO filed with the Regional Trial Court at Caloocan City a civil complaint 9 against
both RYL and STEELWELD for the recovery of the valued of the steel bars and wire sold to and
delivered to RYL (as already narrated) in the amount of P126,129.86, "plus 18% interest from
August 20, 1980 . . . (and) 25% of the total amount sought to be recovered as and by way of
attorney's fees . . . ." 10 Among the allegations of its complaint was that Metrobank Check No.
765380 above mentioned had been given to it in payment of RYL's indebtedness, duly indorsed by
R.Y. Lim. 11 A preliminary attachment was issued by the trial court on the basis of the averments of
the complaint but was shortly dissolved upon the filing of a counter-bond by STEELWELD.

RYL could no longer be located and could not be served with

summons. 12 It never appeared. Only STEELWELD filed an answer, under date of July 16,
1985. 13 In said pleading, it specifically denied the facts alleged in the complaint, the truth, according
to Steelweld, being basically that

1) STELCO "is a complete stranger to it;" it had "not entered into any transaction or business dealing
of any kind" with STELCO, the transactions described in the complaint having been solely and
exclusively between the plaintiff and RYL Construction;

2) the check in question was "only given to a certain R. Lim to be used as collateral for another
obligation . . . (but) in breach of his agreement (Lim) utilized and negotiated the check for another
purpose. . . .;

3) nevertheless, the check "is wholly inoperative since . . . Steelweld

. . . did not issue it for any valuable consideration either to R. Lim or to the plaintiff not to mention
also the fact that the said plaintiff failed to comply with the requirements of the law to hold the said
defendant (STEELWELD) liable
. . ."

Trial ensued upon these issues, after which judgment was rendered on June 26, 1986. 14 The
judgment sentenced "the defendant Steelweld Corporation to pay to . . . (Stelco Marketing
Corporation) the amount of P126,129.86 with legal rate of interest from May 9, 1985, when this case
was instituted until fully paid, plus another sum equivalent to 25% of the total amount due as and for
attorney's fees . . . 15 That disposition was justified in the judgment as follows:16

There is no question, then, that as far as any commercial transaction is concerned

between plaintiff and defendant Steelweld no such transaction ever occurred.
Ordinarily, under civil law rules, there having been no transaction between them
involving the purchase of certain merchandise there would be no privity of contract
between them, and plaintiff will have no right to sue the defendant for payment of
said merchandise for the simple reason that the defendant did not order them, such
less receive them.

But we have here a case where the defendant Steelweld thru its President Peter
Rafael Limson admitted to have issued a check payable to cash in favor of his friend
Romeo Lim who was the President of RYL Construction by way of accommodation.
Under the Negotiable Instruments Law an accommodation party is liable.
 Sec. 29. Liability of an accommodation party. An accommodation
party is one who has signed the instrument as maker, drawer,
acceptor, or indorser, without receiving value therefor, and for the
purpose of lending his name to some other person. Such a person is
liable on the instrument to a holder for value notwithstanding such
holder at the time of taking the instrument knew him to be only an
accommodation party.

From this adverse judgment STEELWELD appealed to the Court of Appeals 17 and there succeeded
in reversing the judgment. By Decision promulgated on May 29, 1990, 18 the Court of
Appeals 19 ordered "the complaint against appellant (STEELWELD) DISMISSED; (and the appellee,
STELCO) to pay appellant the sum of P15,000.00 as attorney's fees and cost of litigation, the suit . .
. (being) a baseless one that dragged appellant in court and caused it to incur attorney's fees and
expense of litigation.

STELCO's motion for reconsideration was denied by the Appellate Tribunal's resolution dated
November 13, 1990. 20 The Court stressed that

. . . as far as Steelweld is concerned, there was no commercial transaction between

said appellant and appellee. Moreover, there is no evidence that appellee Stelco
Marketing became a holder for value. Nowhere in the check itself does the name of
Stelco Marketing appear as payee, indorsee or depositor thereof. Finally, appellee's
complaint is for the collection of the unpaid accounts for delivery of steels bars and
construction materials. It having been established that appellee had no commercial
transaction with appellant Stelco, appellee had no cause of action against said
appellant.

STELCO appealed to this Court in accordance with Rule 45 of the Rules of Court. In this Court it
seeks to make the following points in connection with its plea for the overthrow of the Appellate
Tribunal's aforesaid decision, viz.:

1) said decision is "not in accord with law and jurisprudence;"

2) "STELCO is a "holder" within the meaning of the Negotiable Instruments Law;"

3) "STELCO is a holder in due course of Metrobank Check No. 765380 . . . (and hence) holds the
same free from personal or equitable defense;" and

4) "Negotiation in breach of faith is a personal defense . . . (and hence) not effective as against a
holder in due course."

The points are not well taken.

The crucial question is whether or not STELCO ever became a holder in due course of Check No.
765380, a bearer instrument, within the contemplation of the Negotiable Instruments Law. It never
did.

STELCO evidently places much reliance on the pronouncement of the Regional Trial Court in
Criminal Case No. 66571, 21 that the acquittal of the two (2) accused (Limson and Torres) did not
operate "to release Steelweld Corporation from its liability under Sec. 29 of the Negotiable
Instruments Law for having issued . . . (the check) for the accommodation of Romeo Lim." The cited
provision reads as follows:

Sec. 29. Liability of accommodation party. An accommodation party is one who

has singed the instrument as maker, drawer, acceptor, or indorser, without receiving
valued therefor, and for the purpose of lending his name to some other person. Such
a person is liable on the instrument to a holder for value, notwithstanding such
holder, at the time of taking the instrument, knew him to be only an accommodation
party.

It is noteworthy that the Trial Court's pronouncement containing reference to said Section 29 did not
specify to whom STEELWELD, as accommodation party, is supposed to be liable; and certain it is
that neither said pronouncement nor any other part of the judgment of acquittal declared it liable to
STELCO.

"A holder in due course," says the law, 22 "is a holder who has taken the instrument
under the following conditions:

(a) That is complete and regular upon its face;

(b) That he became the holder of it before it was overdue, and without notice that it
had been previously dishonored, if such was the fact;

(c) That he took it in good faith and for value;

(d) That at the time it was negotiated to him, he had no notice of any infirmity in the
instrument or defect in the title of the persons negotiating it.

To be sure, as regards an accommodation party (such as STEELWELD), the fourth condition, i.e.,
lack of notice of any infirmity in the instruments or defect in title of the persons negotiating it, has no
application. This is because Section 29 of the law above quoted preserves the right of recourse of a
"holder for value" against the accommodation party notwithstanding that "such holder, at the time of
taking the instrument, knew him to be only an accommodation
party." 23

Now, STELCO theorizes that it should be deemed a "holder for value" of STEELWELD's Check No.
765380 because the record shows it to have been in "actual possession" thereof; otherwise, it "could
not have presented, marked and introduced (said check) in evidence . . . before the court a quo."
"Besides," it adds, the check in question was presented by STELCO to the drawee bank for payment
through Armstrong Industries, the manufacturing arm of STELCO and its sister company." 24

The trouble is, there is no evidence whatever that STELCO's possession of Check No. 765380 ever
dated back to nay time before the instrument's presentment and dishonor. There is no evidence
whatsoever that the check was ever given to it, or indorsed to it in any manner or form in payment of
an obligation or as security for an obligation, or for any other purpose before it was presented for
payment. On the contrary, the factual finding of the Court of Appeals, which by traditional precept is
normally conclusive on this Court, is that STELCO never became a holder for value and that
"(n)owhere in the check itself does the name of Stelco Marketing appear as payee, indorsee or
depositor thereof." 25
What the record shows is that: (1) the STEELWELD company check in question was given by its
president to R.Y. Lim; (2) it was given only by way of accommodation, to be "used as collateral for
another obligation;" (3) in breach of the agreement, however, R.Y. Lim indorsed the check to
Armstrong in payment of obligation; (4) Armstrong deposited the check to its account, after indorsing
it; (5) the check was dishonored. The record does not show any intervention or participation by
STELCO in any manner of form whatsoever in these transactions, or any communication of any sort
between STEELWELD and STELCO, or between either of them and Armstrong Industries, at any
time before the dishonor of the check.

The record does show that after the check had been deposited and dishonored, STELCO came into
possession of it in some way, and was able, several years after the dishonor of the check, to give it
in evidence at the trial of the civil case it had instituted against the drawers of the check (Limson and
Torres) and RYL. But, as already pointed out, possession of a negotiable instrument after
presentment and dishonor, or payment, is utterly inconsequential; it does not make the possessor a
holder for value within the meaning of the law; it gives rise to no liability on the part of the maker or
drawer and indorsers.

It is clear from the relevant circumstances that STELCO cannot be deemed a holder of the check for
value. It does not meet two of the essential requisites prescribed by the statute. It did not become
"the holder of it before it was overdue, and without notice that it had been previously dishonored,"
and it did not take the check "in good faith and for value." 26

Neither is there any evidence whatever that Armstrong Industries, to whom R.Y. Lim negotiated the
check accepted the instrument and attempted to encash it in behalf, and as agent of STELCO. On
the contrary, the indications are that Armstrong was really the intended payee of the check and was
the party actually injured by its dishonor; it was after all its representative (a Mr. Young) who
instituted the criminal prosecution of the drawers, Limson and Torres, albeit unsuccessfully.

The petitioner has failed to show any sufficient cause for modification or reversal of the challenged
judgment of the Court of Appeals which, on the contrary, appears to be entirely in accord with the
facts and the applicable law.

WHEREFORE, the petition is DENIED and the Decision of the Court of Appeals in CA-G.R. CV No.
13418 is AFFIRMED in toto. Costs against petitioner.

SO ORDERED

Paras, Padilla and Regalado, JJ., concur.

Nocon., J., is on leave.

Footnotes

1 Rollo, p. 33.

2 Rollo, pp. 12, 17, 112.

3 Rollo, p. 48: Trial Court Decision, p. 3.

4 Id., p. 55.

5 Idem.

6 Id., p. 63

7 Criminal Case No. 66571, raffled and assigned to Branch 30.

8 Rollo, pp. 48, 63.

9 With prayer for the issuance of a writ of preliminary attachment.

10 Rollo, pp. 32, 38.

11 Id., p. 36.

12 Id., p. 60.

13 "with application for damages against the attachment bond."

14 By Judge Segundino D. Chua, later Associate Justice, Court of Appeals.

15 Rollo, pp. 46, 50.

16 Id., p. 49.

17 The appeal was docketed as CA-G.R. CV No. 13418.

18 By Lapea, Jr., J., with the concurrence of Melo (Chairman) and

Martinez, JJ.: Rollo, pp. 59-65.

19 Second Division.

20 Rollo, p. 66.

21 SEE footnote 7 and related text.

22 SEC. 52, Negotiable Instruments Law, Act No. 2031.

23 SEE Agbayani, Commercial Laws of the Philippines, 1975 ed., Vol.

I, citing Prudential Bank and Trust Co. v. Ramesh Trading Co. C.A. 32908-R, Sept.
10, 1964.

24 Rollo, p. 119.

25 SEE footnote 19, supra.

26 See footnote 21 and relevant text, supra.

 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 105188 January 23, 1998

MYRON C. PAPA, Administrator of the Testate Estate of Angela M. Butte, petitioner,

vs.
A.U. VALENCIA and CO. INC., FELIX PEARROYO, SPS. ARSENIO B. REYES & AMANDA
SANTOS, and DELFIN JAO, respondents.

KAPUNAN, J.:

In this petition for review on certiorari under Rule 45 of the Rules of Court, petitioner Myron C. Papa
seeks to reverse and set aside 1) the Decision dated 27 January 1992 of the Court of Appeals which
affirmed with modification the decision of the trial court; and 2) the Resolution dated 22 April 1992 of
the same court, which denied petitioner's motion for reconsideration of the above decision.

The antecedent facts of this case are as follows:

Sometime in June 1982, herein private respondents A.U. Valencia and Co., Inc. (hereinafter referred
to as respondent Valencia, for brevity) and Felix Pearroyo (hereinafter called respondent
Pearroyo), filed with the Regional Trial Court of Pasig, Branch 151, a complaint for specific
performance against herein petitioner Myron C. Papa, in his capacity as administrator of the Testate
Estate of one Angela M. Butte.

The complaint alleged that on 15 June 1973, petitioner Myron C. Papa, acting as attorney-in-fact of
Angela M. Butte, sold to respondent Pearroyo, through respondent Valencia, a parcel of land,
consisting of 286.60 square meters, located at corner Retiro and Cadiz Streets, La Loma, Quezon
City, and covered by Transfer Certificate of Title No. 28993 of the Register of Deeds of Quezon City;
that prior to the alleged sale, the said property, together with several other parcels of land likewise
owned by Angela M. Butte, had been mortgaged by her to the Associated Banking Corporation (now
Associated Citizens Bank); that after the alleged sale, but before the title to the subject property had
been released, Angela M. Butte passed away; that despite representations made by herein
respondents to the bank to release the title to the property sold to respondent Pearroyo, the bank
refused to release it unless and until all the mortgaged properties of the late Angela M. Butte were
also redeemed; that in order to protect his rights and interests over the property, respondent
Pearroyo caused the annotation on the title of an adverse claim as evidenced by Entry No. P.E.-
6118/T-28993, inscribed on 18 January 1997.

The complaint further alleged that it was only upon the release of the title to the property, sometime
in April 1977, that respondents Valencia and Pearroyo discovered that the mortgage rights of the
bank had been assigned to one Tomas L. Parpana (now deceased), as special administrator of the
Estate of Ramon Papa, Jr., on 12 April 1977; that since then, herein petitioner had been collecting
monthly rentals in the amount of P800.00 from the tenants of the property, knowing that said
property had already been sold to private respondents on 15 June 1973; that despite repeated
demands from said respondents, petitioner refused and failed to deliver the title to the property.
Thereupon, respondents Valencia and Pearroyo filed a complaint for specific performance, praying
that petitioner be ordered to deliver to respondent Pearroyo the title to the subject property (TCT
28993); to turn over to the latter the sum of P72,000.00 as accrued rentals as of April 1982, and the
monthly rental of P800.00 until the property is delivered to respondent Pearroyo; to pay
respondents the sum of P20,000.00 as attorney's fees; and to pay the costs of the suit.

In his Answer, petitioner admitted that the lot had been mortgaged to the Associated Banking
Corporation (now Associated Citizens Bank). He contended, however, that the complaint did not
state a cause of action; that the real property in interest was the Testate Estate of Angela M. Butte,
which should have been joined as a party defendant; that the case amounted to a claim against the
Estate of Angela M. Butte and should have been filed in Special Proceedings No. A-17910 before
the Probate Court in Quezon City; and that, if as alleged in the complaint, the property had been
assigned to Tomas L. Parpana, as special administrator of the Estate of Ramon Papa, Jr., said
estate should be impleaded. Petitioner, likewise, claimed that he could not recall in detail the
transaction which allegedly occurred in 1973; that he did not have TCT No. 28993 in his possession;
that he could not be held personally liable as he signed the deed merely as attorney-in-fact of said
Angela M. Butte. Finally, petitioner asseverated that as a result of the filing of the case, he was
compelled to hire the services of counsel for a fee of P20,000.00 for which respondents should be
held liable.

Upon his motion, herein private respondent Delfin Jao was allowed to intervene in the case. Making
common cause with respondents Valencia and Pearroyo, respondent Jao alleged that the subject
lot which had been sold to respondent Pearroyo through respondent Valencia was in turn sold to
him on 20 August 1973 for the sum of P71,500.00, upon his paying earnest money in the amount of
P5,000.00. He, therefore, prayed that judgment be rendered in favor of respondents, the latter in turn
be ordered to execute in his favor the appropriate deed of conveyance covering the property in
question and to turn over to him the rentals which aforesaid respondents sought to collect from
petitioner Myron V. Papa.

Respondent Jao, likewise, averred that as a result of petitioner's refusal to deliver the title to the
property to respondents Valencia and Pearroyo, who in turn failed to deliver the said title to him, he
suffered mental anguish and serious anxiety for which he sought payment of moral damages; and,
additionally, the payment of attorney's fees and costs.

For his part, petitioner, as administrator of the Testate Estate of Angela M. Butte, filed a third-party
complaint against herein private respondents, spouses Arsenio B. Reyes and Amanda Santos
(respondent Reyes spouses, for short). He averred, among other's that the late Angela M. Butte was
the owner of the subject property; that due to non-payment of real estate tax said property was sold
at public auction the City Treasurer of Quezon City to the respondent Reyes spouses on 21 January
1980 for the sum of P14,000.00; that the one-year period of redemption had expired; that
respondents Valencia and Pearroyo had sued petitioner Papa as administrator of the estate of
Angela M. Butte, for the delivery of the title to the property; that the same aforenamed respondents
had acknowledged that the price paid by them was insufficient, and that they were willing to add a
reasonable amount or a minimum of P55,000.00 to the price upon delivery of the property,
considering that the same was estimated to be worth P143,000.00; that petitioner was willing to
reimburse respondents Reyes spouses whatever amount they might have paid for taxes and other
charges, since the subject property was still registered in the name of the late Angela M. Butte; that
it was inequitable to allow respondent Reyes spouses to acquire property estimated to be worth
P143,000.00, for a measly sum of P14,000.00. Petitioner prayed that judgment be rendered
canceling the tax sale to respondent Reyes spouses; restoring the subject property to him upon
payment by him to said respondent Reyes spouses of the amount of P14,000.00, plus legal interest;
and, ordering respondents Valencia and Pearroyo to pay him at least P55,000.00 plus everything
they might have to pay the Reyes spouses in recovering the property.

Respondent Reyes spouses in their Answer raised the defense of prescription of petitioner's right to
redeem the property.

At the trial, only respondent Pearroyo testified. All the other parties only submitted documentary
proof.

On 29 June 1987, the trial court rendered a decision, the dispositive portion of which reads:

WHEREUPON, judgment is hereby rendered as follows:

1) Allowing defendant to redeem from third-party defendants and ordering the latter
to allow the former to redeem the property in question, by paying the sum of
P14,000.00 plus legal interest of 12% thereon from January 21, 1980;

2) Ordering defendant to execute a Deed of Absolute Sale in favor of plaintiff Felix

Pearroyo covering the property in question and to deliver peaceful possession and
enjoyment of the said property to the said plaintiff, free from any liens and
encumbrances;

Should this not be possible, for any reason not attributable to defendant, said
defendant is ordered to pay to plaintiff Felix Pearroyo the sum of P45,000.00 plus
legal interest of 12% from June 15, 1973;

3) Ordering plaintiff Felix Pearroyo to execute and deliver to intervenor a deed of

absolute sale over the same property, upon the latter's payment to the former of the
balance of the purchase price of P71,500.00;

Should this not be possible, plaintiff Felix Pearroyo is ordered to pay intervenor the
sum of P5,000.00 plus legal interest of 12% from August 23, 1973; and

4) Ordering defendant to pay plaintiffs the amount of P5,000.00 for and as attorney's
fees and litigation expenses.

SO ORDERED.1

Petitioner appealed the aforesaid decision of the trial court to the Court of Appeals, alleging among
others that the sale was never "consummated" as he did not encash the check (in the amount of
P40,000.00) given by respondents Valencia and Pearroyo in payment of the full purchase price of
the subject lot. He maintained that what said respondent had actually paid was only the amount of
P5,000.00 (in cash) as earnest money.

Respondent Reyes spouses, likewise, appealed the above decision. However, their appeal was
dismissed because of failure to file their appellant's brief.

On 27 January 1992, the Court of Appeals rendered a decision, affirming with modification the trial
court's decision, thus:
 WHEREFORE, the second paragraph of the dispositive portion of the appealed
decision is MODIFIED, by ordering the defendant-appellant to deliver to plaintiff-
appellees the owner's duplicate of TCT No. 28993 of Angela M. Butte and the
peaceful possession and enjoyment of the lot in question or, if the owner's duplicate
certificate cannot be produced, to authorize the Register of Deeds to cancel it and
issue a certificate of title in the name of Felix Pearroyo. In all other respects, the
decision appealed from is AFFIRMED. Costs against defendant-appellant Myron C.
Papa.

SO ORDERED.2

In affirming the trial court's decision, respondent court held that contrary to petitioner's claim that he
did not encash the aforesaid check, and therefore, the sale was not consummated, there was no
evidence at all that petitioner did not, in fact, encash said check. On the other hand, respondent
Pearroyo testified in court that petitioner Papa had received the amount of P45,000.00 and issued
receipts therefor. According to respondent court, the presumption is that the check was encashed,
especially since the payment by check was not denied by defendant-appellant (herein petitioner)
who, in his Answer, merely alleged that he "can no longer recall the transaction which is supposed to
have happened 10 years ago."3

On petitioner's claim that he cannot be held personally liable as he had acted merely as attorney-in-
fact of the owner, Angela M. Butte, respondent court held that such contention is without merit. This
action was not brought against him in his personal capacity, but in his capacity as the administrator
of the Testate Estate of Angela M. Butte.4

On petitioner's contention that the estate of Angela M. Butte should have been joined in the action as
the real party in interest, respondent court held that pursuant to Rule 3, Section 3 of the Rules of
Court, the estate of Angela M. Butte does not have to be joined in the action. Likewise, the estate of
Ramon Papa, Jr., is not an indispensable party under Rule 3, Section 7 of the same Rules. For the
fact is that Ramon Papa, Jr., or his estate, was not a party to the Deed of Absolute Sale, and it is
basic law that contracts bind only those who are parties thereto.5

Respondent court observed that the conditions under which the mortgage rights of the bank were
assigned are not clear. In any case, any obligation which the estate of Angela M. Butte might have to
the estate of Ramon Papa, Jr. is strictly between them. Respondents Valencia and Pearroyo are
not bound by any such obligation.

Petitioner filed a motion for reconsideration of the above decision, which motion was denied by
respondent Court of Appeals.

Hence, this petition wherein petitioner raises the following issues:

I. THE CONCLUSION OR FINDING OF THE COURT OF APPEALS THAT THE

SALE IN QUESTION WAS CONSUMMATED IS GROUNDED ON SPECULATION
OR CONJECTURE, AND IS CONTRARY TO THE APPLICABLE LEGAL
PRINCIPLE.

II. THE COURT OF APPEALS, IN MODIFYING THE DECISION OF THE TRIAL

COURT, ERRED BECAUSE IT, IN EFFECT, CANCELLED OR NULLIFIED AN
ASSIGNMENT OF THE SUBJECT PROPERTY IN FAVOR OF THE ESTATE OF
RAMON PAPA, JR. WHICH IS NOT A PARTY IN THIS CASE.
 III. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE ESTATE OF
ANGELA M. BUTTE AND THE ESTATE OF RAMON PAPA, JR. ARE
INDISPENSABLE PARTIES IN THIS
CASE.6

Petitioner argues that respondent Court of Appeals erred in concluding that alleged sale of the
subject property had been consummated. He contends that such a conclusion is based on the
erroneous presumption that the check (in the amount of P40,000.00) had been cashed, citing Art.
1249 of the Civil Code, which provides, in part, that payment by checks shall produce the effect of
payment only when they have been cashed or when through the fault of the creditor they have been
impaired.7 Petitioner insists that he never cashed said check; and, such being the case, its delivery
never produced the effect of payment. Petitioner, while admitting that he had issued receipts for the
payments, asserts that said receipts, particularly the receipt of PCIB Check No. 761025 in the
amount of P40,000.00, do not prove payment. He avers that there must be a showing that said
check had been encashed. If, according to petitioner, the check had been encashed, respondent
Pearroyo should have presented PCIB Check No. 761025 duly stamped received by the payee, or
at least its microfilm copy.

Petitioner finally avers that, in fact, the consideration for the sale was still in the hands of
respondents Valencia and Pearroyo, as evidenced by a letter addressed to him in which said
respondents wrote, in part:

. . . Please be informed that I had been authorized by Dr. Ramon Papa, Jr., heir of
Mrs. Angela M. Butte to pay you the aforementioned amount of P75,000.00 for the
release and cancellation of subject property's mortgage. The money is with me and if
it is alright with you, I would like to tender the payment as soon as possible. . . .8

We find no merit in petitioner's arguments.

It is an undisputed fact that respondents Valencia and Pearroyo had given petitioner Myron C.
Papa the amounts of Five Thousand Pesos (P5,000.00) in cash on 24 May 1973, and Forty
Thousand Pesos (P40,000.00) in check on 15 June 1973, in payment of the purchase price of the
subject lot. Petitioner himself admits having received said amounts,9 and having issued receipts
therefor.10 Petitioner's assertion that he never encashed the aforesaid check is not substantiated and
is at odds with his statement in his answer that "he can no longer recall the transaction which is
supposed to have happened 10 years ago." After more than ten (10) years from the payment in party
by cash and in part by check, the presumption is that the check had been encashed. As already
stated, he even waived the presentation of oral evidence.

Granting that petitioner had never encashed the check, his failure to do so for more than ten (10)
years undoubtedly resulted in the impairment of the check through his unreasonable and
unexplained delay.

While it is true that the delivery of a check produces the effect of payment only when it is cashed,
pursuant to Art. 1249 of the Civil Code, the rule is otherwise if the debtor is prejudiced by the
creditor's unreasonable delay in presentment. The acceptance of a check implies an undertaking of
due diligence in presenting it for payment, and if he from whom it is received sustains loss by want of
such diligence, it will be held to operate as actual payment of the debt or obligation for which it was
given.11 It has, likewise, been held that if no presentment is made at all, the drawer cannot be held
liable irrespective of loss or injury12 unless presentment is otherwise excused. This is in harmony
with Article 1249 of the Civil Code under which payment by way of check or other negotiable
instrument is conditioned on its being cashed, except when through the fault of the creditor, the
instrument is impaired. The payee of a check would be a creditor under this provision and if its no-
payment is caused by his negligence, payment will be deemed effected and the obligation for which
the check was given as conditional payment will be discharged.13

Considering that respondents Valencia and Pearroyo had fulfilled their part of the contract of sale
by delivering the payment of the purchase price, said respondents, therefore, had the right to compel
petitioner to deliver to them the owner's duplicate of TCT No. 28993 of Angela M. Butte and the
peaceful possession and enjoyment of the lot in question.

With regard to the alleged assignment of mortgage rights, respondent Court of Appeals has found
that the conditions under which said mortgage rights of the bank were assigned are not clear.
Indeed, a perusal of the original records of the case would show that there is nothing there that could
shed light on the transactions leading to the said assignment of rights; nor is there any evidence on
record of the conditions under which said mortgage rights were assigned. What is certain is that
despite the said assignment of mortgage rights, the title to the subject property has remained in the
name of the late Angela M. Butte.14This much is admitted by petitioner himself in his answer to
respondent's complaint as well as in the third-party complaint that petitioner filed against respondent-
spouses Arsenio B. Reyes and Amanda Santos.15Assuming arquendo that the mortgage rights of
the Associated Citizens Bank had been assigned to the estate of Ramon Papa, Jr., and granting that
the assigned mortgage rights validly exists and constitute a lien on the property, the estate may file
the appropriate action to enforce such lien. The cause of action for specific performance which
respondents Valencia and Pearroyo have against petitioner is different from the cause of action
which the estate of Ramon Papa, Jr. may have to enforce whatever rights or liens it has on the
property by reason of its being an alleged assignee of the bank's rights of mortgage.

Finally, the estate of Angela M. Butte is not an indispensable party. Under Section 3 of Rule 3 of the
Rules of Court, an executor or administrator may sue or be sued without joining the party for whose
benefit the action is presented or defended, thus:

Sec. 3. Representative parties. A trustee of an express trust, a guardian, executor

or administrator, or a party authorized by statute, may sue or be sued without joining
the party for whose benefit the action is presented or defended; but the court may, at
any stage of the proceedings, order such beneficiary to be made a party. An agent
acting in his own name and for the benefit of an undisclosed principal may sue or be
sued without joining the principal except when the contract involves things belonging
to the principal.16

Neither is the estate of Ramon Papa, Jr. an indispensable party without whom, no final
determination of the action can be had. Whatever prior and subsisting mortgage rights the estate of
Ramon Papa, Jr. has over the property may still be enforced regardless of the change in ownership
thereof.

WHEREFORE, the petition for review is hereby DENIED and the Decision of the Court of Appeals,
dated 27 January 1992 is AFFIRMED.

SO ORDERED.

Davide, Jr., Bellosillo and Vitug, JJ., concur.

Footnotes

1 Rollo, pp. 70-71.

2 Rollo, pp. 41-42.

3 Id., at 40.

4 Id., at 41.

5 Id., at 40-41.

6 Id., at 23-24.

7 Art. 1249. The payment of debts in money shall be made in the currency stipulated,
and if it 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.

8 Rollo, p. 26.

9 Id., at 132.

10 Id., at 25.

11 60 AM. JUR. 2d, Sec. 59.

12 Campos and Lopez-Campos, Negotiable Instruments Law, 4th Edition (1990), p.

561 citingRodriguez vs. Hardouin, 15 La. App. 112, 131 So. 593.

13 Id., at 560 citing Gabon vs. Balagot, 53 O.G. No. 11,3504.

14 Rollo, p. 41.

15 Original Records, p. 162.

16 This section has been amended by the 1997 Rules of Civil Procedure to read as
follows:

Sec. 3. Representative as parties. Where the action is allowed to be prosecuted or

defended by a representative or someone acting in a fiduciary capacity, the
beneficiary shall be included in the title of the case and shall be deemed to be the
real party in interest. A representative may be a trustee of an express trust, a
guardian, an executor or administrator, or a party authorized by law or these Rules.
An agent acting in his own name and for the benefit of an undisclosed principal may
sue or be sued without joining the principal except when the contract involves things
belonging to the principal.