Bank of the Philippine Islands v. Royeca
REITERATIONFacts
The Antecedents: Spouses Reynaldo and Victoria Royeca (respondents) executed a Promissory Note for ₱577,008.00 payable in 48 monthly installments to Toyota Shaw, Inc., secured by a Chattel Mortgage over a vehicle. Toyota assigned its rights to Far East Bank and Trust Company (FEBTC). FEBTC claimed respondents failed to pay four monthly amortizations from May 18, 1997, to August 18, 1997. Respondents alleged they delivered eight postdated checks totaling ₱97,281.78 to FEBTC on May 20, 1997, and believed their obligation was paid as they received no notice of dishonor. FEBTC, later substituted by Bank of the Philippine Islands (BPI) due to merger, filed a complaint for replevin and damages. Procedural History: The Metropolitan Trial Court (MeTC) dismissed the complaint and granted respondents' counterclaim for damages. The Regional Trial Court (RTC) reversed the MeTC decision, ordering respondents to pay the outstanding amount. The Court of Appeals (CA) reinstated the MeTC decision, ruling in favor of the respondents. BPI then filed a petition for review with the Supreme Court. The Petition: BPI sought a review of the CA decision, questioning whether respondents proved full payment, whether tender of checks constitutes payment, and whether respondents are entitled to damages.
Issue(s)
Whether or not respondents were able to prove full payment of their obligation. Whether or not tender of checks constitutes payment. Whether or not respondents are entitled to moral and exemplary damages and attorney’s fees; and the propriety of reducing the stipulated penalty charge.
Ruling
The Supreme Court partially granted the petition. It reversed and set aside the Court of Appeals Decision and Resolution, and reinstated the Regional Trial Court's Decision with a modification. Respondents were ordered to deliver the possession of the subject vehicle, or in the alternative, pay petitioner ₱48,084.00 plus late penalty charges/interest at the rate of 12% per annum from May 18, 1997, until fully paid.
Ratio Decidendi
On the issue of whether respondents proved full payment: The Court held that the burden of proof to establish payment rests on the debtor. Respondents failed to present sufficient proof of payment by merely delivering checks. Delivery of checks does not constitute payment unless they are encashed or presented to the drawee bank and paid, or if the checks were lost through the fault of the drawee bank. The respondents' assertion that they believed their obligation was paid due to lack of notice of dishonor and the lapse of three years was insufficient. The Acknowledgment Receipt was merely proof of delivery of checks, not of actual payment. The petitioner's possession of the promissory note and chattel mortgage documents served as prima facie evidence that the obligation was not extinguished. On the issue of whether tender of checks constitutes payment: The Court reiterated the settled rule that payment must be made in legal tender. A check is not legal tender and, therefore, cannot constitute a valid tender of payment. A negotiable instrument is merely a substitute for money, and its delivery does not, by itself, operate as payment. The obligation remains suspended until the payment by commercial document is actually realized. Thus, the respondents had to present proof of encashment, which they failed to do. On the issue of entitlement to damages and the propriety of reducing the stipulated penalty charge: The Court found that the respondents were not entitled to moral and exemplary damages because their claim of payment was not sufficiently proven. However, considering that respondents were not notified of the dishonor of the checks and that the obligation had been partially paid, the Court deemed it just and equitable to reduce the stipulated 3% per month penalty charge to 12% per annum. This reduction was based on the principle that a stipulated penalty may be equitably reduced if it is iniquitous or unconscionable, or if the principal obligation has been partly or irregularly complied with.
Main Doctrine
Delivery of checks does not constitute payment unless they are encashed or have been presented to the drawee bank and have been paid, or if the drawer-debtor has lost the checks or they have been lost through the fault of the drawee bank. The burden of proving payment rests on the debtor, and mere delivery of checks, without proof of encashment, is insufficient to discharge an obligation.