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Cebu International Finance Corp. v.

CA
(1999)
G.R. No. 123031 October 12, 1999
Lessons Applicable: Introduction to Negotiable Instruments (Negotiable Instruments Law)
FACTS:

April 25, 1991: Vicente Alegre (Alegre), invested with Cebu International Finance
Corporation (CIFC),a quasi-banking institution, P500,000.00

CIFC issued a promissory note to mature on May 27, 1991. The note for P516,238.67
covered private respondent's placement plus 20.5% interest for 32 days.

May 27, 1991: CIFC issued BPI Check No. 513397 for P514,390.94 in favor
of Alegre as proceeds of his matured investment plus interest. The CHECK was drawn
from CIFC's current account in the Bank of the Philippine Islands (BPI)

June 17, 1991: Alegre's wife deposited the check with Rizal Commercial Banking Corp.
(RCBC) in Puerto Princesa, Palawan.
o BPI dishonored the CHECK with the annotation, that the "Check (is) Subject of
an Investigation

BPI took custody of the CHECK pending an investigation of several


counterfeit checks drawn against CIFC's aforestated checking account.

BPI used the check to trace the perpetrators of the forgery.

Immediately, Alegre notified CIFC of the dishonored CHECK and demanded, on several
occasions, that he be paid in cash.
o CIFC refused the request, and instead instructed him to wait for its ongoing bank
reconciliation with BPI.

Alegre, through counsel, made a formal demand for the payment of his
money market placement

CIFC promised to replace the CHECK but required an impossible


condition that the original must first be surrendered.

February 25, 1992: Alegre filed a complaint for recovery of a sum of money w/ the RTC
against CIFC
o CIFC filed a motion for leave of court to file a third-party complaint against BPI dismissed bec. of the other case
o CIFC asserted that the CHECK it issued in favor of Alegre was genuine, valid and
sufficiently funded.

July 13, 1992: CIFC sought to recover its lost funds and formally filed against BPI
o alleged that BPI unlawfully deducted from CIFC's checking account, counterfeit
checks amounting to P1,724,364.58

compromise agreement, which was submitted for the approval of the court
o BPI pay CFIC P1,724,364.58 + P20,000 litigation expenses
o BPI shall debit of P514,390.94 from the current account of CFIC payable to
Alegre
o In case BPI shall be adjudge liable to Alegre, he cannot go after BPI

July 27, 1993: BPI filed a separate collection suit against Alegre
o alleged that Alegre connived w/ Lina A. Pena and Lita A. Anda and forged several
checks of CIFC totalling to P1,724,364.58 deducting P514,390.94 = P914,198.57
+ P20,000 cost of suit

September 27, 1993: RTC favored Alegre

CIFC appealed but CA Affirmed

ISSUE: W/N a check is of legal tender thereby extinguishing the obligation of CIFC to pay
Alegre
HELD: NO. CA Affirmed.

Section 137 of the Negotiable Instruments Law


o BPI primarily liable for accepting the checks

Art. 1249 of the New Civil Code

o The payment of debts in money shall be made in the currency stipulated, and if it
is not possible to deliver such currency, then in the currency, which is legal tender
in the Philippines.
The delivery of promissory notes payable to order, or bills of exchange or other
mercantile documents shall produce the effect of payment only when they have
been cashed, or when through the fault of the creditor they have been impaired.

money market - a market dealing in standardized short-term credit instruments (involving


large amounts) where lenders and borrowers do not deal directly with each other but
through a middle man or dealer in open market. In a money market transaction, the
investor is a lender who loans his money to a borrower through a middleman or dealer.

In the case at bar, the money market transaction between the CIFC and the Alegre is in
the nature of a loan.
o Alegre accepted the CHECK, instead of requiring payment in money.

Yet, when he presented it to RCBC for encashment, as early as June 17,


1991, the same was dishonored by non-acceptance, with BPI's annotation:
"Check (is) subject of an investigation."

Under these circumstances, and after the notice of dishonor, the holder has
an immediate right of recourse against the drawer, and consequently could
immediately file an action for the recovery of the value of the check.

In a loan transaction, the obligation to pay a sum certain in money may be paid in money,
which is the legal tender or, by the use of a check.
o A check is not a legal tender, and therefore cannot constitute valid tender of
payment.

Although the value of the CHECK was deducted from the funds of CIFC, it was not
delivered to Alegre - did not not ipso facto operate as a discharge or payment

A compromise is a contract whereby the parties, by making reciprocal concessions, avoid


a litigation or put an end to one already commenced
o unenforceable against Alegre who is not a party

BPI's confiscation of Alegre's money constitutes garnishment without the parties going
through a valid proceeding in court.

In effect, CIFC has not yet tendered a valid payment of its obligation to theAlegre

GR compromise has upon the parties the effect and authority of res judicata, with respect
to the matter definitely stated therein
o holds true even if the agreement has not been judicially approved

CIFC cannot go against BPI