GR 176664; (July, 2008) (Digest)
G.R. No. 176664; July 21, 2008
BANK OF THE PHILIPPINE ISLANDS, Petitioner, vs. SPOUSES REYNALDO AND VICTORIA ROYECA, Respondents.
FACTS
Spouses Royeca obtained a car loan from Toyota Shaw, Inc., secured by a chattel mortgage on the vehicle. Toyota assigned the mortgage to Far East Bank and Trust Company (FEBTC), later merged with BPI. BPI alleged the spouses defaulted on the last four monthly installments. The spouses, in their defense, claimed full payment by delivering eight postdated checks to FEBTC, as evidenced by an Acknowledgment Receipt. They asserted they received no notice of dishonor and thus believed in good faith their obligation was settled. BPI’s witness admitted receiving the checks but testified that two were dishonored, and the remaining two were consequently not deposited, leaving an unpaid balance.
The Metropolitan Trial Court (MeTC) dismissed BPI’s complaint for replevin and damages and awarded moral and exemplary damages and attorney’s fees to the spouses. The Regional Trial Court (RTC) reversed this, ordering the spouses to pay the claimed amount. The Court of Appeals (CA) then reinstated the MeTC decision, favoring the spouses.
ISSUE
The primary issue is whether the delivery of checks by the respondents constituted full payment of their loan obligation to the petitioner bank.
RULING
The Supreme Court reversed the CA decision and reinstated the RTC ruling with modification. The Court held that the delivery of a check, by itself, does not operate as payment. It is merely a conditional payment, contingent upon the check’s honor upon presentment. The legal logic is rooted in the nature of negotiable instruments under the Negotiable Instruments Law; a check is only a substitute for money and not money itself. The burden of proof to show payment rested on the respondents. Their mere presentation of the Acknowledgment Receipt for the checks was insufficient to discharge this burden. The receipt only proved delivery, not that the checks were funded and honored. The petitioner’s evidence, through its witness, that two checks were dishonored, remained uncontroverted. Consequently, the obligation was not extinguished.
However, the Court modified the RTC’s monetary award. The stipulated penalty of 36% per annum was deemed iniquitous and reduced to 12% per annum, in line with the Court’s equitable power to reduce excessive penalties. The award of attorney’s fees to BPI was deleted due to lack of justification. The Court also ordered the spouses to deliver the vehicle or, alternatively, pay the outstanding principal with 12% interest. The awards of moral and exemplary damages to the spouses were correctly deleted, as BPI’s action was a legitimate judicial recourse to collect a debt.