Title
Bank of the Philippine Islands vs. Spouses Royeca
Case
G.R. No. 176664
Decision Date
Jul 21, 2008
Spouses Royeca executed a promissory note secured by a chattel mortgage. FEBTC (later BPI) claimed default; respondents argued full payment via checks. SC ruled checks insufficient proof of payment, ordered vehicle return or payment with reduced interest.
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Case Digest (G.R. No. 176664)

Facts:

  1. Promissory Note and Chattel Mortgage: On August 23, 1993, Spouses Reynaldo and Victoria Royeca executed a Promissory Note for P577,008.00 payable in 48 monthly installments, secured by a Chattel Mortgage over a 1993 Toyota Corolla.
  2. Assignment of Rights: Toyota assigned its rights under the Chattel Mortgage to Far East Bank and Trust Company (FEBTC).
  3. Alleged Default: FEBTC claimed the respondents failed to pay four monthly installments from May to August 1997 and sent a demand letter on March 14, 2000.
  4. Respondents’ Defense: The respondents argued they had already paid their obligation by delivering eight postdated checks totaling P97,281.78 to FEBTC on May 20, 1997, and received no notice of dishonor.
  5. Legal Proceedings: FEBTC (later BPI after merger) filed a Complaint for Replevin and Damages. The MeTC dismissed the complaint and awarded damages to the respondents. The RTC reversed the MeTC’s decision, but the CA reinstated the MeTC’s ruling.

Issue:

  1. Whether the respondents proved full payment of their obligation as an affirmative defense.
  2. Whether the tender of checks constitutes payment.
  3. Whether the respondents are entitled to moral and exemplary damages and attorney’s fees.

Ruling:

The Supreme Court partially granted BPI’s petition. It reversed the CA’s decision, reinstated the RTC’s ruling with modification, and ordered the respondents to deliver the vehicle or pay P48,084.00 plus interest at 12% per annum from May 18, 1997, until fully paid.

Ratio:

  1. Burden of Proof: The respondents, as debtors, had the burden to prove payment. Mere delivery of checks is insufficient; proof of encashment was required.
  2. Checks as Payment: A check is not legal tender and does not discharge an obligation unless encashed. The respondents failed to prove the checks were encashed.
  3. Laches: The petitioner’s claim is not barred by laches as the action was filed within the 10-year prescriptive period.
  4. Penalty Reduction: The Court equitably reduced the penalty from 3% per month to 12% per annum due to partial payment and the bank’s failure to notify the respondents of the dishonored checks.
  5. Damages: The respondents were not entitled to moral and exemplary damages as the petitioner acted within its rights.


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