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CEBU INTERNATIONAL FINANCE CORPORATION v. CA

FACTS:

Cebu International Finance Corporation (CIFC), a quasi-banking institution, accepted an investment of five hundred thousand pesos by Vicente Alegre. CIFC issued a promissory note with an interest rate of 20.5% for 32 days, which would mature on May 27, 1991. On the said date, CIFC issued a check to Alegre for the invested amount plus interest. However, the check was dishonored by the Bank of the Philippine Islands (BPI) due to an ongoing investigation on counterfeit checks drawn against CIFC’s account. CIFC advised Alegre to wait for their bank reconciliation with BPI.

Subsequently, Alegre filed a complaint against CIFC for recovery of a sum of money. In response, CIFC filed a separate civil action against BPI to recover its lost funds. CIFC also filed a third-party complaint against BPI, which was eventually dismissed.

BPI then entered into a compromise agreement with CIFC, where they agreed to pay a certain amount and deduct the value of Alegre’s check from CIFC’s account. Following this agreement, BPI filed a separate collection suit against Alegre, alleging his involvement in forging the checks.

The trial court ruled in favor of Alegre, and the Court of Appeals affirmed this decision. CIFC, dissatisfied with the ruling, appealed the decision and raised various issues.

ISSUES:

  1. Whether Article 1249 of the Civil Code or the provisions of the Negotiable Instruments Law (NIL) apply in the present case.

  2. Whether "BPI Check No. 513397" was validly discharged.

  3. Whether the dismissal of the third party complaint of the petitioner against BPI by reason of lis pendens was proper.

  4. Whether the compromise agreement could bind a party who did not sign the agreement nor avail of its benefits.

  5. Whether the garnishment of the plaintiff’s money by the defendant constitutes a valid tender of payment.

  6. Whether the third party complaint should be dismissed on the ground of lis pendens.

RULING:

  1. The provisions of the Negotiable Instruments Law (NIL) are not applicable to the money market transaction in this case. Article 1249 of the Civil Code, which deals with the payment of debts in money, applies. The delivery of the check did not operate as payment and the obligation to pay a sum certain in money cannot be validly tendered through a check.

  2. The deduction of the amount of the check from the petitioner's current account did not operate as a discharge or payment of the instrument. Although the value of the check was deducted, it was not delivered to the payee, and instead, the amount was offset against the losses incurred by BPI from forged checks allegedly committed by the private respondent. Thus, the check was not validly discharged.

  3. The dismissal of the petitioner's third party complaint against BPI due to lis pendens was proper.

  4. The compromise agreement could not bind a party who did not sign the agreement nor avail of its benefits. The stipulations in the compromise agreement are unenforceable against the party who did not participate in or benefit from the agreement.

  5. The defendant’s confiscation of the plaintiff’s money constitutes garnishment without the proper order of the court. Garnishment should be done through a valid proceeding in court.

  6. The third party complaint should be dismissed on the ground of lis pendens. There is identity of parties and rights asserted between the third party claim and the ancillary claim in another case, and any judgment in one case would amount to res judicata in the other.

PRINCIPLES:

  • Article 1249 of the Civil Code provides for the payment of debts in money and stipulates that the delivery of promissory notes or bills of exchange shall only produce the effect of payment when they have been cashed or impaired due to the fault of the creditor.

  • A negotiable instrument is only a substitute for money and the delivery of such instrument does not, by itself, operate as payment. A check is not legal tender and an offer of a check in payment of a debt is not a valid tender of payment.

  • The deduction of the amount of a check from an account does not operate as a discharge or payment of the instrument if the amount is not delivered to the payee.

  • A compromise agreement is a contract that requires the mutual consent of the parties and cannot bind a party who did not sign the agreement or derive benefits from it.

  • Garnishment is a legal procedure that requires a proper order from the court to attach the property of the defendant in the hands of a third person.

  • Litis pendentia is a ground for dismissal of an action when the following requisites are present: identity of parties or same parties representing the same interest, identity of rights asserted and relief prayed for, and the judgment in one case would amount to res judicata in the other.