Title
Cebu International Fice Corp. vs. Court of Appeals
Case
G.R. No. 123031
Decision Date
Oct 12, 1999
CIFC issued a dishonored check to Alegre for a matured investment; SC ruled CIFC liable despite a compromise with BPI, affirming Article 1249 governs payment obligations.

Case Summary (G.R. No. 123031)

Key Dates and Procedural History

April 25, 1991: Alegre invests P500,000 with CIFC; promissory note issued.
May 27, 1991: CIFC issues BPI Check No. 513397 for P514,390.94 to Alegre as maturity proceeds.
June 17, 1991: Alegre’s wife deposits the check with RCBC; BPI dishonors the check, marks it “subject of an investigation,” and retains the original.
February 25, 1992: Alegre files a recovery action (Civil Case No. 92-515) against CIFC before RTC-Makati Branch 132.
July 13, 1992: CIFC files a separate collection suit against BPI (Civil Case No. 92-1940, RTC-Makati Branch 147) claiming unlawful deduction of forged checks from CIFC’s account.
CIFC is permitted to file a third-party complaint against BPI in Alegre’s case, but that third-party complaint is later dismissed for lis pendens.
September 27, 1993: RTC Branch 132 rules in favor of Alegre ordering CIFC to pay P514,390.94 with legal interest.
Court of Appeals affirmed. Supreme Court denied the petition for review — petitioner’s appeal was denied and costs awarded against petitioner.

Factual Summary

Alegre’s money market placement produced a promissory instrument/check drawn on CIFC’s BPI current account. After Alegre attempted to cash the check through RCBC, BPI refused payment, retained the original check pending investigation into several counterfeit checks drawn on CIFC’s account, and furnished only a certified true copy to RCBC. CIFC sought recovery from BPI for losses from forged checks and later entered into a compromise agreement with BPI under which BPI would credit CIFC’s account with the settlement amount and debit P514,390.94 as payment/discharge of the check to Alegre. BPI later debited CIFC’s account in accordance with that compromise. BPI also filed suit against Alegre alleging forgery and collusion. Alegre, having his check dishonored and without receipt of actual cash, sued CIFC for recovery. The trial court found CIFC liable; the appellate court affirmed.

Issues Framed by the Petitioner

  1. Whether Article 1249 of the Civil Code applies in lieu of the Negotiable Instruments Law to the money market transaction.
  2. Whether BPI’s actions (acceptance/deduction) validly discharged CIFC’s liability on the check.
  3. Whether dismissal of CIFC’s third-party complaint against BPI on the ground of lis pendens was proper.

Court’s Determination on Applicable Law (Article 1249 vs. NIL)

The Court treated the transaction as a money market loan where delivery of a negotiable instrument (check) functions as a proposed payment medium but is not payment until actually realized. Article 1249 of the Civil Code — which provides that delivery of promissory notes, bills of exchange, or other mercantile documents produces the effect of payment only when they have been cashed or when, through the fault of the creditor, they have been impaired — governs the payment-extinguishment question. The court relied on established jurisprudence that a check is only a substitute for money and not legal tender; mere delivery does not extinguish the underlying monetary obligation. The Negotiable Instruments Law provisions concerning acceptance, dishonor, and holder’s recourse remain relevant to the rights and remedies available, but Article 1249 controls whether delivery constitutes payment.

Court’s Analysis on Whether the Check Was Validly Discharged

The Court held that CIFC’s obligation to Alegre was not discharged despite BPI’s subsequent debit of CIFC’s account. Key points:

  • A check is not legal tender; payment via check is effective only upon actual realization (cashing) or when the creditor’s fault impairs the instrument (Art. 1249, par. 2). Alegre did not receive payment because BPI retained the original and the check was dishonored on presentation.
  • BPI’s retention and subsequent debiting of CIFC’s account followed a compromise agreement between CIFC and BPI settling CIFC’s collection suit. That compromise and BPI’s appropriation of the funds cannot operate to discharge CIFC’s obligation to Alegre because Alegre was not a party to that compromise.
  • A compromise or contract between CIFC and BPI cannot, by itself, bind or prejudice a third party (Alegre) who did not give authority to be represented; Article 1317 of the Civil Code prohibits contracting in another’s name without authority.
  • The bank’s appropriation of Alegre’s funds pursuant to the compromise was characterized as effectively a form of garnishment without the requisite judicial process; such appropriation could not extinguish the payee’s right absent proper procedure or the payee’s consent or payment to the payee.
  • Tender of payment requires a positive, unconditional offer of legal tender currency. The offset in the bank account and the compromise arrangement did not amount to an unconditional tender to Alegre or an actual delivery of payment to him.

Accordingly, CIFC remained liable to Alegre for the face value of the check plus legal interest because the check had been dishonored and payment to Alegre had not occurred.

Court’s Analysis on the Drawer’s Discharge by Drawee’s Acts and Negotiable Instruments Law Arguments

Petitioner argued that BPI’s acceptance or conduct under NIL Section 137 (liability of drawee retaining or destroying bill construed as acceptance if not returned) and its debiting of CIFC’s account made BPI primarily liable and discharged CIFC. The Court rejected this approach for the facts at hand because:

  • The bank’s actions did not result in actual payment to the holder/payee; BPI’s internal set-off against alleged losses and the compromise reflected a resolution between CIFC and BPI, not a realization of payment for Alegre.
  • Even if certain NIL doctrines apply to determine primary liability of drawee banks under different circumstances, they do not permit a drawee and drawer to extinguish an obligee-payee’s claim by private arrangement that does not deliver payment to the obligee or bind the obligee.
  • After dishonor, the holder (Alegre) had a right of immediate recourse against the drawer under NIL, and CIFC could not rely on BPI’s subsequent debiting to extinguish that liability absent compliance with rules that effect payment to the holder.

Court’s Rationale on Dismissal of the Third-Party Complaint (Lis Pendens)

The Court upheld dismissal of CIFC’s third-party complaint against BPI on ground of lis pendens because the requisites for dismissal due to lis pendens were satisfied:

  • Identity of parties/interests: The third-party claim and CIFC’s separate collection suit against BPI involved substantially the same parties or parties representing the same interests regarding recovery of the value of Check No. 513397.
  • Identity of rights asserted and relief prayed for: Both actions sought recovery of the same amount (relief founded on identical facts concerning the alleged unlawful deduction/forgery and the value of the check).
  • A judgment in one case would likely be res judicata in the other: Allowing BPI to be impleaded in Alegre’s action would have conflicted with the compromise terms and could result in inconsistent adjudications.

Additionally, the compromise agreement between CIFC and BPI expressly provided that, if CIFC were adjudged liable to Alegre, CIFC could not pursue BPI with

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