In a commercial transaction, delivering a check does not automatically equate to payment. The Supreme Court clarified that the party claiming payment through checks bears the burden of proving that these checks were indeed encashed. This ruling emphasizes the importance of diligent record-keeping and follow-through in financial dealings to ensure that obligations are fully discharged, safeguarding both debtors and creditors.

Checks and Balances: Who Bears the Burden of Proving Payment?

The case of Bank of the Philippine Islands v. Spouses Royeca (G.R. No. 176664, July 21, 2008) centered on a dispute over an unpaid debt. The Spouses Royeca took out a loan from Toyota Shaw, Inc., secured by a promissory note and a chattel mortgage on their vehicle. Toyota later assigned its rights to Far East Bank and Trust Company (FEBTC), which eventually merged with BPI. When the spouses allegedly defaulted on payments, BPI filed a replevin case to recover the vehicle or the outstanding debt.

The Royecas argued that they had already paid their obligation by delivering eight postdated checks to FEBTC. However, BPI claimed that some of these checks were dishonored, leaving a balance of P48,084.00. The Metropolitan Trial Court (MeTC) initially ruled in favor of the Royecas, but the Regional Trial Court (RTC) reversed this decision, ordering the spouses to pay the claimed amount. The Court of Appeals (CA) then reinstated the MeTC’s decision, leading BPI to elevate the case to the Supreme Court.

The central issue was whether the Royecas had sufficiently proven that they had fully paid their obligation. The Supreme Court addressed the question of whether the mere delivery of checks constituted payment. The court reiterated the established principle that payment must be made in legal tender. A check, as a negotiable instrument, is merely a substitute for money, not legal tender itself. Therefore, delivering a check does not, by itself, operate as payment.

The Supreme Court explained that to successfully claim payment, the Royecas needed to provide evidence not only that they delivered the checks, but also that these checks were actually encashed. Since they failed to present cancelled checks or any other proof of encashment, they did not sufficiently discharge their burden of proving payment. The court emphasized that the burden of proof rests on the debtor to show with legal certainty that the obligation has been discharged by payment.

The Court acknowledged the Royecas’ argument that they were not notified of the dishonor of the checks, but clarified that the bank had no legal obligation to provide such notice to preserve its right to recover on the original obligation. Notice of dishonor is required only to maintain the liability of the drawer (the Royecas in this case) on the check itself, not on the underlying debt. Moreover, the creditor’s possession of the promissory note and chattel mortgage served as strong evidence that the debt remained unpaid.

While the Court found that the Royecas had not fully proven payment, it also addressed the issue of fairness. The Court noted that reasonable banking practice dictates that a bank should promptly inform a debtor when a check is dishonored to allow for immediate replacement or payment. Given the circumstances and the partial payments made, the Court deemed it just to reduce the penalty charges from 3% per month to 12% per annum.

FAQs

What was the key issue in this case?	The central issue was whether the delivery of checks automatically constitutes payment for a debt, and who bears the burden of proving that the checks were actually encashed.
Does delivering a check mean the debt is paid?	No, delivering a check is not considered legal tender and does not automatically discharge the debt. The check must be honored and encashed to constitute payment.
Who has to prove that the check was encashed?	The debtor (the person owing the money) has the burden of proving that the check was actually encashed by providing evidence like a cancelled check or bank statement.
What happens if the check bounces or is dishonored?	If a check is dishonored, the original debt remains unpaid. The creditor can then pursue legal action to recover the outstanding amount, plus any applicable penalties or interest.
Did the bank have to inform the Royecas that the checks bounced?	While not legally obligated to do so to preserve their right to recover on the original debt, the Court noted that reasonable banking practice dictates that the bank should have notified the Royecas promptly about the dishonored checks.
What evidence did the Spouses Royeca provide to prove they paid?	The Spouses Royeca provided an acknowledgment receipt showing they delivered eight checks to FEBTC. However, they failed to present evidence that the checks were actually encashed.
What was the final ruling of the Supreme Court?	The Supreme Court ruled that the Spouses Royeca were still liable for the unpaid debt but reduced the penalty charges from 3% per month to 12% per annum, finding the original penalty excessive.
Why was the penalty charge reduced?	The penalty charge was reduced due to the principle of equity and the fact that the debtors were not promptly notified of the dishonored checks, as well as partial payments.

In conclusion, this case serves as a reminder that payment by check requires more than just the issuance of the check itself; it necessitates ensuring that the check is honored and cleared. Debtors must maintain proper records to prove payment, and creditors should promptly communicate any issues with check payments. This promotes transparency and fairness in financial transactions.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Bank of the Philippine Islands vs. Spouses Reynaldo and Victoria Royeca, G.R. No. 176664, July 21, 2008