Papa vs. A.U. Valencia and Co. Inc.

The delivery of a check produces the effect of payment when it is presumed encashed due to the passage of time, or when, through the fault of the creditor, the check is impaired by unreasonable delay in presentment. The Court held that petitioner's failure to encash the check for over ten years either raised a presumption of encashment or constituted impairment through his fault, thereby consummating the sale. Furthermore, the Court held that the estate represented by the administrator is not an indispensable party under Rule 3, Section 3 of the Rules of Court.

On June 15, 1973, Myron C. Papa, acting as attorney-in-fact for Angela M. Butte, sold a parcel of land in Quezon City to Felix Peñarroyo through A.U. Valencia and Co., Inc. The property was mortgaged to Associated Banking Corporation. After Butte's death, the bank refused to release the title unless all her mortgaged properties were redeemed. Peñarroyo annotated an adverse claim. The mortgage rights were later assigned to the estate of Ramon Papa, Jr. Petitioner collected rentals from the property despite the sale.

• The Sale: On June 15, 1973, Myron C. Papa, as attorney-in-fact for Angela M. Butte, sold a 286.60-square meter lot (TCT No. 28993) to Felix Peñarroyo through A.U. Valencia and Co., Inc. Peñarroyo paid P5,000.00 in cash on May 24, 1973, and P40,000.00 via PCIB check on June 15, 1973. Papa issued receipts for both amounts.
• The Mortgage: Prior to the sale, the property was mortgaged to Associated Banking Corporation. After Butte's death, the bank refused to release the title unless all her mortgaged properties were redeemed. Peñarroyo annotated an adverse claim on the title on January 18, 1977.
• Assignment of Mortgage Rights: In April 1977, the bank's mortgage rights were assigned to Tomas L. Parpana, special administrator of the Estate of Ramon Papa, Jr.
• Intervention and Third-Party Complaint: Delfin Jao intervened, claiming Peñarroyo resold the property to him on August 20, 1973. Papa filed a third-party complaint against the Reyes spouses, who bought the property at a tax sale in 1980.
• Petitioner's Stance: Papa claimed he could not recall the transaction, did not have the title in his possession, and could not be held personally liable as he acted merely as attorney-in-fact. He asserted that the P40,000.00 check was never encashed.

• Petitioner argued that the sale was never consummated because he never encashed the P40,000.00 check, citing Article 1249 of the Civil Code, which provides that payment by check produces the effect of payment only when cashed.
• Petitioner insisted that the receipts he issued do not prove payment absent a showing that the check was encashed, and that respondent Peñarroyo should have presented the cancelled check or its microfilm copy.
• Petitioner contended that the estates of Angela M. Butte and Ramon Papa, Jr. are indispensable parties, arguing that the Court of Appeals effectively nullified the assignment of mortgage rights to Ramon Papa, Jr.'s estate without impleading it.

• Respondents contended that they fulfilled their obligation by delivering the purchase price, as evidenced by the receipts issued by petitioner.
• Respondent Peñarroyo testified that Papa received the P45,000.00 and issued receipts therefor.
• Respondents argued that the estate of Angela M. Butte need not be joined under Rule 3, Section 3 of the Rules of Court, and that Ramon Papa, Jr.'s estate was not a party to the deed of sale and thus not an indispensable party.

• Procedural Issues: Whether the estates of Angela M. Butte and Ramon Papa, Jr. are indispensable parties in the action for specific performance.
• Substantive Issues: Whether the sale was consummated given petitioner's claim that he never encashed the P40,000.00 check, and whether payment by check was validly effected under Article 1249 of the Civil Code.

• Procedural: The Court held that the estates are not indispensable parties. Pursuant to Rule 3, Section 3 of the Rules of Court, an administrator may sue or be sued without joining the party for whose benefit the action is presented or defended. Furthermore, the estate of Ramon Papa, Jr. was not a party to the contract of sale, and contracts bind only the parties thereto. Whatever mortgage lien the estate holds may be enforced in a separate action regardless of the change in ownership.
• Substantive: The Court held that the sale was consummated. Petitioner's claim that he never encashed the check was unsubstantiated and contradicted by his own statement that he could no longer recall the transaction. After more than ten years, the presumption is that the check was encashed. Alternatively, assuming the check was never encashed, petitioner's unreasonable delay in presenting it for over ten years constituted impairment through the creditor's fault under Article 1249 of the Civil Code. The acceptance of a check implies an undertaking of due diligence in presenting it for payment, and lack of such diligence operates as actual payment.

• Payment by Check under Article 1249, Civil Code — The delivery of a check produces the effect of payment only when cashed, except when through the fault of the creditor the instrument is impaired. Unreasonable delay in presentment by the payee constitutes such fault, discharging the obligation for which the check was given. Furthermore, after a considerable lapse of time, a presumption of encashment arises.
• Representative Parties / Indispensable Parties — Under Rule 3, Section 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. A prior lienholder is not an indispensable party in a suit for specific performance by the buyer against the seller, as the lien can be enforced regardless of the change in ownership.

• "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."
• "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."

• Rodriguez vs. Hardouin, 15 La. App. 112, 131 So. 593 — Cited as support for the principle that if no presentment is made at all, the drawer cannot be held liable irrespective of loss or injury unless presentment is otherwise excused.
• Gabon vs. Balagot, 53 O.G. No. 11,3504 — Cited as support for the principle that the payee of a check is a creditor under Article 1249, and if non-payment is caused by his negligence, payment will be deemed effected.

• Article 1249, Civil Code — Governs payment by check or negotiable instrument. The Court applied the second paragraph, holding that payment by check produces the effect of payment only when cashed, or when through the fault of the creditor the instrument is impaired. The Court found that the creditor's unreasonable delay in encashing the check constituted such fault.
• Rule 3, Section 3, Rules of Court — Governs representative parties. The Court applied this to hold that an administrator may be sued without joining the estate's beneficiary, hence the estate of Angela M. Butte was not an indispensable party.

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