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Cebu International Finance Corporation V CA Alegre

Cebu International Finance Corporation v. Court of Appeals, G.R. No. 123031 October 12, 1999 FACTS: - Alegre invested ₱500,000 with CIFC who issued a promissory note and later a check for the amount plus interest. - The check was dishonored by BPI due to an investigation into counterfeit checks drawn on CIFC's account. ISSUE: Whether a check constitutes legal tender to extinguish CIFC's obligation to pay Alegre. HELD: No. A check is not considered legal tender under the law. While BPI deducted the value of the check from CIFC's account,

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203 views4 pages

Cebu International Finance Corporation V CA Alegre

Cebu International Finance Corporation v. Court of Appeals, G.R. No. 123031 October 12, 1999 FACTS: - Alegre invested ₱500,000 with CIFC who issued a promissory note and later a check for the amount plus interest. - The check was dishonored by BPI due to an investigation into counterfeit checks drawn on CIFC's account. ISSUE: Whether a check constitutes legal tender to extinguish CIFC's obligation to pay Alegre. HELD: No. A check is not considered legal tender under the law. While BPI deducted the value of the check from CIFC's account,

Uploaded by

JANE MARIE DOROMAL
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We take content rights seriously. If you suspect this is your content, claim it here.
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Cebu International Finance Corporation v.

Court of
Appeals, G.R. No. 123031 October 12, 1999
The prevailing jurisprudence is that a mortgagee has a right to rely in good faith on the certificate
of title of the mortgagor to the property given as security and in the absence of any sign that might
arouse suspicion, has no obligation to undertake further investigation.
Facts: Jacinto Dy executed a Special Power of Attorneyin favor of private respondent Ang Tay,
authorizing the latter to sell the cargo vessel owned by Dy and christened LCT “Asiatic.” Through a
Deed of Absolute Sale, Ang Tay sold the subject vessel to Robert Ong (Ong). Ong paid the purchase
price by issuing three (3) checks However, since the payment was not made in cash, it was
specifically stipulated in the deed of sale that the “LCT Asiatic shall not be registered or transferred
to Robert Ong until complete payment.” Thereafter, Ong obtained possession of the subject vessel so
he could begin deriving economic benefits therefrom. He, likewise, obtained copies of the
unnotarized deed of sale allegedly to be shown to the banks to enable him to acquire a loan to
replenish his (Ong’s) capital. The aforequoted condition, however, which was handwritten on the
original deed of sale does not appear on Ong’s copies.Contrary to the aforementioned agreements
and without the knowledge of Ang Tay, Ong had his copies of the deed of sale (on which the
aforementioned prohibition does not appear) notarized Ong presented the notarized deed to the
Philippine Coast Guard which subsequently issued him a Certificate of Ownership and a Certificate
of Philippine Register over the subject vessel. Ong also succeeded in having the name of the vessel
changed to LCT “Orient Hope.”

Using the acquired vessel, Ong acquired a loan from Cebu International Finance Corporation to be
paid in installments as evidenced by a promissory note of even date.  As security for the loan, Ong
executed a chattel mortgage over the subject vessel, which mortgage was registered with the
Philippine Coast Guard and annotated on the Certificate of Ownership.

-Ong defaulted in the payment of the monthly installments. Consequently, Cebu International
Finance Corporation sent him a letter ] demanding delivery of the mortgaged vessel for foreclosure or
in the alternative to pay the balance pursuant to paragraph 11 of the deed of chattel mortgage.
Meanwhile, the two checks paid by Ong to Ang Tay for the Purchase of the subject vessel bounced.
Ang Tay’s search for the elusive Ong and all attempts to confer with him proved to be futile. A
subsequent investigation and inquiry with the Office of the Coast Guard revealed that the subject
vessel was already in the name of Ong, in violation of the express undertaking contained in the
original deed of sale. As a result thereof, Ang Tay and Jacinto Dy filed a civil case for rescission and
replevin with damages against Ong and his wife.

Issue: Whether or not Cebu International Finance Corporation can validly foreclose the chattel
mortgage

Held: The prevailing jurisprudence is that a mortgagee has a right to rely in good faith on the
certificate of title of the mortgagor to the property given as security and in the absence of any sign
that might arouse suspicion, has no obligation to undertake further investigation. Hence, even if the
mortgagor is not the rightful owner of or does not have a valid title to the mortgaged property, the
mortgagee or transferee in good faith is nonetheless entitled to protection. Although this rule
generally pertains to real property, particularly registered land, it may also be applied by analogy to
personal property, in this case specifically, since ship owners are, likewise, required by law to
register their vessels with the Philippine Coast Guard.

The chattel mortgage constituted on a vessel by the buyer who was able to register the vessel in his
name despite the agreement with the seller that the vessel would not be so registered until after full
payment of the price which do not appear in the buyer’s copy of the deed of sale is VALID, for the
mortgagee has the right to rely in good faith on the certificate of registration.

Lessons Applicable: Introduction to Negotiable Instruments (Negotiable Instruments Law)

Cebu International Finance Corporation v. Court of Appeals, G.R. No.


123031 October 12, 1999
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
 compromise agreement, which was submitted for the approval of the court
 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
 July 27, 1993: BPI filed a separate collection suit against Alegre 
 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
 BPI primarily liable for accepting the checks
 Art. 1249 of the New Civil Code
 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. 
 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.
 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 
 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
 holds true even if the agreement has not been judicially approved
 CIFC cannot go against BPI
Cebu Financial vs CA and Alegre
GR No. 123031, 12 October 1999
316 SCRA 488

FACTS
Vicente Alegre invested with Cebu International Finance Corporation (CIFC)
P500,000 in cash. CIFC issued promissory note which covered private
respondent’s placement. CIFC issued BPI Check No. 513397 (the Check) in
favor of private respondent as proceeds of his matured investment. Mrs.
Alegre deposited the Check with RCBC but BPI dishonoured it, annotating
therein that the “Check is subject of an investigation”. BPI took possession
of the Check pending investigation of several counterfeit checks drawn
against CIFC’s checking account. Private respondent demanded from CIFC
that he be paid in cash but the latter refused. Private respondent Alegre filed
a case for recovery of a sum of money against CIFC.

CIFC asserts that since BPI accepted the instrument, the bank became
primarily liable for the payment of the Check. When BPI offset the value of
the Check against the losses from the forged cheks allegedly committed by
private respondent, the Check was deemed paid.

ISSUE
Whether or not petitioner CIFC is discharged from the liability of paying the
value of the Check.

HELD
The Court held in the negative. In a money market transaction, the investor
is a lender who loans his money to a borrower through a middleman or
dealer. A check is not legal tender, and therefore cannot constitute valid
tender of payment. Since a negotiable instrument is only substitute for
money and not money, the delivery of such an instrument does not by itself,
operate as payment. Mere delivery of checks does not discharge the
obligation under a judgment. The obligation is not extinguished and remains
suspended until the payment by commercial document is actually realized.
(Article 1249)

Petition denied.

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