Negotiable Instruments Case Digest: 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.

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.

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

CIFC filed a motion for leave of court to file a third-party complaint against BPI - dismissed bec. of the other case
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

alleged that BPI unlawfully deducted from CIFC's checking account, counterfeit checks amounting to P1,724,364.58

BPI pay CFIC P1,724,364.58 + P20,000 litigation expenses
BPI shall debit of P514,390.94 from the current account of CFIC payable to Alegre
In case BPI shall be adjudge liable to Alegre, he cannot go after BPI

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

ISSUE: W/N a check is of legal tender thereby extinguishing the obligation of CIFC to pay Alegre

HELD: NO. CA Affirmed.

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.

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.

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

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