G.R. No. L-56101 - Perez vs. Court of Appeals

CONGENERIC Development & Finance Corporation (CONGENERIC) was engaged in money market operations.
On May 8, 1974, CONGENERIC issued a bearer promissory note (Bill 1298) amounting to ₱11,973.58, maturing on August 6, 1974, in favor of bearer No. 049, later identified as Ramon C. Mojica or his entity.
On May 15, 1974, CONGENERIC issued another bearer promissory note (Bill 1419) amounting to ₱208,666.67, maturing on August 13, 1974, also in favor of Mojica or his entity.
On June 5, 1974, MEVER Films, Inc. (MEVER) borrowed ₱500,000.00 from CONGENERIC and issued a negotiable promissory note (NCI-0352), maturing on August 5, 1974, with interest at 14% per annum if unpaid on due date; no interest was stipulated prior to due date.

On July 3, 1974, CORAZON paid ₱200,000.00 to CONGENERIC, receiving Confirmation of Sale (CS) No. 0366 as bearer 209.
CS-0366 entitled CORAZON to receive ₱203,483.33 on August 5, 1974.
CONGENERIC agreed to make collection on behalf of CORAZON, transferring to her all CONGENERIC’s interest in NCI-0352 as security, effectively allowing her to sue MEVER subject to defenses.
CONGENERIC paid CORAZON interest of ₱3,483.33 (approximately 19% per annum) on August 5, 1974.

On August 5, 1974, MEVER paid ₱100,000.00 to CONGENERIC on NCI-0352.
On August 5, 1974, CONGENERIC paid CORAZON ₱103,483.33, which included the interest portion paid from CONGENERIC’s funds.
On August 6 and August 13, 1974, CONGENERIC paid only the interest due on Bill 1298 and Bill 1419 respectively, rolling over the principal amounts to October 4 and October 11, 1974; the roll-overs were annotated in the original bills.

On September 9, 1974, Mojica assigned Bills 1298 and 1419 to MEVER through a notarized deed.
On October 3, 1974, MEVER surrendered the originals of Bills 1298 and 1419 to CONGENERIC and requested computation of its account balance for payment.
On October 7, 1974, MEVER was served garnishment notices for claims against CONGENERIC amounting to ₱185,693.78.
CONGENERIC advised MEVER by phone and in writing that ₱200,000.00 out of NCI-0352 was sold on July 3, 1974, to a third party (later identified as CORAZON), thus declining to acknowledge the assignment of Bills 1298 and 1419 to MEVER.
On November 15, 1974, MEVER paid the Provincial Sheriff ₱79,359.75, the amount computed as balance due after compensation and garnishment.

CONGENERIC filed a Petition for Suspension of Payments on October 23, 1974; MEVER was listed as a debtor, but a January 24, 1975 Court Order declared MEVER was not a debtor of CONGENERIC.
CORAZON filed suit on July 14, 1975 against MEVER for recovery of ₱100,000 plus interest, damages, and attorney’s fees, admitting CS-0366 was “without recourse.”
Trial Court ruled in favor of CORAZON; MEVER paid ₱131,166.00 under execution pending appeal.
The Court of Appeals reversed the Trial Court’s judgment.
CORAZON petitioned the Supreme Court challenging the Court of Appeals’ ruling on several legal grounds.

Whether MEVER’s obligation under the Negotiable Certificate of Indebtedness (NCI-0352) was partially extinguished by legal compensation due to MEVER’s acquisition of Bills 1298 and 1419 from Mojica.
Whether MEVER could validly set up compensation as a defense despite the assignment of part of the obligation to CORAZON.
Whether the absence of prior notice to MEVER of CORAZON’s acquisition of part of the debt affected the applicability of compensation under Article 1285 of the Civil Code.
Whether the Court of Appeals erred in applying Article 1626 (payment before knowledge of assignment) and Article 1285 (on compensation and assignment) of the Civil Code.
Whether MEVER’s payment to the Sheriff under garnishment extinguished its obligation to CORAZON.
Whether the money market nature of the transaction affected the application of rules governing assignments and compensation under the Civil Code.