Jurisprudence: G.R. Nos. 118498 & 124377 October 12, 1999

THIRD DIVISION
G.R. Nos. 118498 & 124377 October 12, 1999
FILIPINAS SYNTHETIC FIBER CORPORATION, petitioner vs. COURT OF APPEALS, COURT OF TAX APPEALS and COMMISSIONER OF INTERNAL REVENUE, respondents.

D E C I S I O N

PURISIMA, J.:

Before the Court are two consolidated Petitions for Review on Certiorari under Rule 45 of the Revised Rules of Court seeking to set aside the Decisions of the Court of Appeals in CA-GR. SP Nos. 32922 and 32022.

In G.R. No. 118498, the Court of Appeals culled the antecedent facts that matter as follows:

The basic operative facts are not in dispute, to wit: Filipinas Synthetic Fiber Corporation , a domestic corporation received on December 27, 1979 a letter of demand ... from the Commissioner of Internal Revenue ... assessing it for deficiency withholding tax at source in the total amount of P829,748.77, inclusive of interest and compromise penalties, for the period from the fourth quarter of 1974 to the fourth quarter of 1975. The bulk of the deficiency withholding tax assessment, however, consisted of interest and compromise penalties for alleged late payment of withholding taxes due on interest loans, royalties and guarantee fees paid by the petitioner to non-resident corporations. The assessment was seasonably protested by the petitioner through its auditor, SGV and Company. Respondent denied the protest in a letter dated 14 May 1985 ... on the following ground: For Philippine internal revenue tax purposes, the liability to withhold and pay income tax withheld at source from certain payments due to a foreign corporation is at the time of accrual and not at the time of actual payment or remittance thereof, citing BIR Ruling No. 71-003 and BIR Ruling No. 24-71-003-154-84 dated 12 September 1984 as well as the decision of the Court of Tax Appeals ... in CTA Case No. 3307 entitled Construction Resources of Asia, Inc., versus Commissioner of Internal Revenue. The aforementioned case held that the liability of the taxpayer to withhold and pay the income tax withheld at source from certain payments due to a non-resident foreign corporation attaches at the time of accrual payment or remittance thereof and the withholding agent/corporation is obliged to remit the tax to the government since it already and properly belongs to the government. Since the taxpayer failed to pay the withholding tax on interest, royalties, and guarantee fee at the time of their accrual and in the books of the corporation the aforesaid assessment is therefore legal and proper.

On June 28, 1985, petitioner brought a Petition for Review before the Court of Tax Appeals, docketed as CTA Case No. 3951. On June 15, 1993, the said court came out with its Decision, ruling thus:

IN VIEW OF THE FOREGOING, judgment is hereby rendered ordering petitioner to pay respondent the amount of P306,165.35 as deficiency withholding tax at source for the fourth quarter of 1974 to the third quarter of 1975 plus 10% surcharge and 14% annual interest from November 29, 1979 to July 31, 1980, plus 20% interest from August 1, 1980 until fully paid but not to exceed that which corresponds to a period of three (3) years pursuant to P.D. No. 1705.

SO ORDERED.

With the denial of its motion for reconsideration, petitioner appealed the CTA disposition to the Court of Appeals, which affirmed in toto the appealed decision.

Dissatisfied therewith, petitioner found its way to this Court via the present Petition; contending that:

THE CA ERRED IN HOLDING THAT FILSYNS LIABILITY TO WITHHOLD THE INCOME TAX FOR INTEREST, ROYALTIES AND DIVIDENDS, WHICH WERE PAYABLE TO NON-RESIDENT FOREIGN CORPORATIONS, ATTACHED UPON SETTING-UP OR ACCRUAL OF THESE AMOUNTS RATHER THAN WHEN SAID AMOUNTS BECOME DUE AND DEMANDABLE UNDER THE APPLICABLE CONTRACTS.

In G.R. No. 124377, what is being questioned by petitioner is the assessed deficiency withholding tax at source for the period from the fourth quarter of 1975 to the fourth quarter of 1976 amounting to P379,700.68.

The pivot of inquiry here is - whether the liability to withhold tax at source on income payments to non-resident foreign corporations arises upon remittance of the amounts due to the foreign creditors or upon accrual thereof.

It is petitioners submission that the withholding taxes on the said interest income and royalties were paid to the government when the subject interest and royalties were actually remitted abroad. Stated otherwise, whatever amount has accrued in the books, the withholding tax due thereon is ultimately paid to the government upon remittance abroad of the amount accrued.

Section 53 of the National Internal Revenue Code, in force at that time (1975), reads:

Withholding Tax at source ...

x x x

(b) Non-resident aliens and foreign corporations - Every individual, corporation, partnership, or association, in whatever capacity acting, including a lessee or mortgagor of real or personal property, trustee acting in any trust capacity, executor, administrator, receiver, conservator, fiduciary, employer, and every officer or employee of the Government of the Republic of the Philippines having the control, receipt, custody, disposal, or payment of interest, dividends, rents, royalties, salaries, wages, premiums, annuities, compensation, remunerations, emoluments, or other fixed or determinable annual, periodical, or casual gains, profits, and income, and capital gains, of any non-resident alien not engaged in trade or business within the Philippines, shall (except in the case provided in sub-section (a) (1) of this Section) deduct and withhold from the annual, periodical, or casual gains, profits, and income, and capital gains, a tax equal to 30 per cent thereof.

x x x

(2) Non-resident foreign corporations - In the case of foreign corporations subject to tax under this Title, not engaged in trade or business within the Philippines, there shall be deducted and withheld at the source in the same manner and upon the same items as is provided in subsection (b) (1) of this section, as well as on remunerations for technical services or otherwise, a tax equal to thirty-five (35) per cent thereof. This tax shall be returned and paid in and subject to the same conditions as provided in Section 54.

On the other hand, Section 54 of the same law, provides:

Returns and payments of taxes withheld at source -

(a) Quarterly return and payment of taxes withheld - Taxes deducted and withheld under Section 53 shall be covered by a return and paid to the Commissioner of Internal Revenue or his collection agent in the province, city, or municipality where the withholding agent has his legal residence or principal place of business, or where the withholding agent is a corporation, where the principal office is located. The taxes deducted and withheld by the withholding agent shall be held as a special fund in trust for the Government until paid to the collecting officers. The Commissioner of Internal Revenue may, with the approval of the Secretary of Finance, require these withholding agents to pay or deposit the taxes deducted and withheld at more frequent intervals when necessary to protect the interest of the Government. The return shall be filed and the payment made within 25 days from the close of each calendar quarter ...

The aforecited provisions of law are silent as to when does the duty to withhold the taxes arise. And to determine the same, an inquiry as to the nature of accrual method of accounting, the procedure used by the herein petitioner, and to the modus vivendi of withholding tax at source come to the fore.

The method of withholding tax at source is a procedure of collecting income tax sanctioned by the National Internal Revenue Code. Section 53 (c) of which, provides:

Return and Payment - Every person required to deduct and withhold any tax under this section shall make return thereof, ... for the payment of the tax, shall pay the amount withheld to the officer of the Government of the Philippines authorized to receive it. Every such person is made personally liable for such tax, and is indemnified against the claims and demands of any person for the amount of any payments made in accordance with the provision of this section.

In the aforecited provision of law, the withholding agent is explicitly made personally liable for the income tax withheld under Section 54. In Phil. Guaranty Co., Inc. vs. Commissioner of Internal Revenue, the Court, has ratiocinated:

The law sets no condition for the personal liability of the withholding agent to attach. The reason is to compel the withholding agent to withhold the tax under all circumstances. In effect, the responsibility for the collection of the tax as well as the payment thereof is concentrated upon the person over whom the Government has jurisdiction. Thus, the withholding agent is constituted the agent both the government and the taxpayer. With respect to the collection and/or withholding of the tax, he is the Governments agent. In regard to the filing of the necessary income tax return and the payment of the tax to the Government, he is the agent of the taxpayer. The withholding agent, therefore, is no ordinary government agent especially because under Section 53 (c) he is held personally liable for the tax he is duty bound to withhold; whereas, the Commissioner of Internal Revenue and his deputies are not made liable to law.

On the other hand, under the accrual basis method of accounting, income is reportable when all the events have occurred that fix the taxpayers right to receive the income, and the amount can be determined with reasonable accuracy. Thus, it is the right to receive income, and not the actual receipt, that determines when to include the amount in gross income.[5] Gleanable from this notion are the following requisites of accrual method of accounting, to wit: (1) that the right to receive the amount must be valid, unconditional and enforceable, i.e., not contingent upon future time; (2) the amount must be reasonably susceptible of accurate estimate; and (3) there must be a reasonable expectation that the amount will be paid in due course.

In the case at bar, after a careful examination of pertinent records, the Court concurred in the finding by the Court of Appeals in CA GR. SP No. 32922 that there was a definite liability, a clear and imminent certainty that at the maturity of the loan contracts, the foreign corporation was going to earn income in an ascertained amount, so much so that petitioner already deducted as business expense the said amount as interests due to the foreign corporation. This is allowed under the law, petitioner having adopted the accrual method of accounting in reporting its incomes.

All things studiedly considered, the Court is of the opinion, and holds, that the Court of Appeals erred not in ruling that:

x x x Petitioner cannot now claim that there is no duty to withhold and remit income taxes as yet because the loan contract was not yet due and demandable. Having written-off the amounts as business expense in its books, it had taken advantage of the benefit provided in the law allowing for deductions from gross income. Moreover, it had represented to the BIR that the amounts so deducted were incurred as a business expense in the form of interest and royalties paid to the foreign corporations. It is estopped from claiming otherwise now.

WHEREFORE, the decisions of the Court of Appeals in CA GR. SP Nos. 32922 and 32022 are hereby AFFIRMED in toto. No pronouncement as to costs.

SO ORDERED.

Tax Case Digest: Filipinas Synthentic Fiber v. CA (1999)

THIRD DIVISION
Filipinas Synthentic Fiber v. CA (1999)
G.R. Nos. 118498 & 124377  October 12, 1999
PURISIMA, J.

Lessons Applicable: Apply accrual method equally for both deduction and income, estoppel applies in CTA tax disputes

Laws Applicable:

FACTS:

• Filipinas Synthetic Fiber Corp. received a letter of demand for deficiency withholding tax on interest loans, royalties and guarantee fees paid by it non-resident corporations.
• It filed a protest on the ground that: "For Philippine Internal Revenue Tax purposes, the liability to withhold is from the time of accrual or remittance citing BIR ruling No. 71-3003 and 24-71-003-154-84.  
• It then filed a Petition for Review at the CTA and CA who denied its petition that it can be paid upon remittance.

ISSUE: W/N liability to withhold tax at source on income payments to non-resident foreign corporations arises upon remittance of the amount due rather than upon accrual.

HELD: No. CA AFFIRMED in toto.

• Section 53 (c) he is held personally liable for the tax he is duty bound to withhold; whereas, the Commissioner of Internal Revenue and his deputies are not made liable to law.
• Since there was a definite clear liability and imminent certainty that it was going to earn income it should already be taxable. 
• Moreover, petitioner is estopped for he has already claimed deductions as there were incurred as a business expense in the form of interest and royalties paid.
  

Jurisprudence: G.R. No. 123031 October 12, 1999

SECOND DIVISION

G.R. No. 123031 October 12, 1999

CEBU INTERNATIONAL FINANCE CORPORATION, petitioner,
vs.
COURT OF APPEALS, VICENTE ALEGRE, respondents.

QUISUMBING, J.:

This petition for review on certiorari assails respondent appellate court's Decision, 1 dated December 8, 1995, in CA G.R. CV No. 44085, which affirmed the ruling of the Regional Trial Court of Makati, Branch 132. The dispositive portion of the trial court's decision reads:

WHEREFORE, judgment is hereby rendered ordering defendant [herein petitioner] to pay plaintiff [herein private respondent]:

(1) the principal sum of P514,390.94 with legal interest thereon computed from August 6, 1991 until fully paid; and

(2) the costs of suit.

SO ORDERED. 2

Based on the records, the following are the pertinent facts of the case:

Cebu International Finance Corporation (CIFC), a quasi-banking institution, is engaged in money market operations.

On April 25, 1991, private respondent, Vicente Alegre, invested with CIFC, five hundred thousand (P500,000.00) pesos, in cash. Petitioner issued a promissory note to mature on May 27, 1991. The note for five hundred sixteen thousand, two hundred thirty-eight pesos and sixty-seven centavos (P516,238.67) covered private respondent's placement plus interest at twenty and a half (20.5%) percent for thirty-two (32) days.

On May 27, 1991, CIFC issued BPI Check No. 513397 (hereinafter the CHECK) for five hundred fourteen thousand, three hundred ninety pesos and ninety-four centavos (P514,390.94) in favor of the private respondent as proceeds of his matured investment plus interest. The CHECK was drawn from petitioner's current account number 0011-0803-59, maintained with the Bank of the Philippine Islands (BPI), main branch at Makati City.1âwphi1.nêt

On June 17, 1991, private respondent'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, private respondent notified CIFC of the dishonored CHECK and demanded, on several occasions, that he be paid in cash. CIFC refused the request, and instead instructed private respondent to wait for its ongoing bank reconciliation with BPI. Thereafter, private respondent, through counsel, made a formal demand for the payment of his money market placement. In turn, CIFC promised to replace the CHECK but required an impossible condition that the original must first be surrendered.

On February 25, 1992, private respondent Alegre filed a complaint 3 for recovery of a sum of money against the petitioner with the Regional Trial Court of Makati (RTC-Makati), Branch 132.

On July 13, 1992, CIFC sought to recover its lost funds and formally filed against BPI, a separate civil action 4 for collection of a sum of money with the RTC-Makati, Branch 147. The collection suit alleged that BPI unlawfully deducted from CIFC's checking account, counterfeit checks amounting to one million, seven hundred twenty-four thousand, three hundred sixty-four pesos and fifty-eight centavos (P1,724,364.58). The action included the prayer to collect the amount of the CHECK paid to Vicente Alegre but dishonored by BPI.

Meanwhile, in response to Alegre's complaint with RTC-Makati, Branch 132, CIFC filed a motion for leave of court to file a third-party complaint against BPI. BPI was impleaded by CIFC to enforce a right, for contribution and indemnity, with respect to Alegre's claim. CIFC asserted that the CHECK it issued in favor of Alegre was genuine, valid and sufficiently funded.

On July 23, 1992, the trial court granted CIFC's motion. However, BPI moved to dismiss the third-party complaint on the ground of pendency of another action with RTC-Makati, Branch 147. Acting on the motion, the trial court dismissed the third-party complaint on November 4, 1992, after finding that the third party complaint filed by CIFC against BPI is similar to its ancillary claim against the bank, filed with RTC-Makati Branch 147.

Thereafter, during the hearing by RTC-Makati, Branch 132, held on May 27, and June 22, 1993, Vito Arieta, Bank Manager of BPI, testified that the bank, indeed, dishonored the CHECK, retained the original copy and forwarded only a certified true copy to RCBC. When Arieta was recalled on July 20, 1993, he testified that on July 16, 1993, BPI encashed and deducted the said amount from the account of CIFC, but the proceeds, as well as the CHECK remained in BPI's custody. The bank's move was in accordance with the Compromise Agreement 5 it entered with CIFC to end the litigation in RTC-Makati, Branch 147. The compromise agreement, which was submitted for the approval of the said court, provided that:

1. Defendant [BPI] shall pay to the plaintiff [CIFC] the amount of P1,724,364.58 plus P20,000 litigation expenses as full and final settlement of all of plaintiff's claims as contained in the Amended Complaint dated September 10, 1992. The aforementioned amount shall be credited to plaintiff's current account No. 0011-0803-59 maintained at defendant's Main Branch upon execution of this Compromise Agreement.

2. Thereupon, defendant shall debit the sum of P514,390.94 from the aforesaid current account representing payment/discharge of BPI Check No. 513397 payable to Vicente Alegre.

3. In case plaintiff is adjudged liable to Vicente Alegre in Civil Case No. 92-515 arising from the alleged dishonor of BPI Check No. 513397, plaintiff cannot go after the defendant: otherwise stated, the defendant shall not be liable to the plaintiff. Plaintiff [CIFC] may however set-up the defense of payment/discharge stipulated in par. 2 above. 6

On July 27, 1993, BPI filed a separate collection suit 7 against Vicente Alegre with the RTC-Makati, Branch 62. The complaint alleged that Vicente Alegre connived with certain Lina A. Pena and Lita A. Anda and forged several checks of BPI's client, CIFC. The total amount of counterfeit checks was P1,724,364.58. BPI prevented the encashment of some checks amounting to two hundred ninety five thousand, seven hundred seventy-five pesos and seven centavos (P295,775.07). BPI admitted that the CHECK, payable to Vicente Alegre for P514,390.94, was deducted from BPI's claim, hence, the balance of the loss incurred by BPI was nine hundred fourteen thousand, one hundred ninety-eight pesos and fifty-seven centavos (P914,198.57), plus costs of suit for twenty thousand (P20,000.00) pesos. The records are silent on the outcome of this case.

On September 27, 1993, RTC-Makati, Branch 132, rendered judgment in favor of Vicente Alegre.

CIFC appealed from the adverse decision of the trial court. The respondent court affirmed the decision of the trial court.

Hence this appeal, 8 in which petitioner interposes the following assignments of errors:

1. The Honorable Court of Appeals erred in affirming the finding of the Honorable Trial Court holding that petitioner was not discharged from the liability of paying the value of the subject check to private respondent after BPI has debited the value thereof against petitioner's current account.

2. The Honorable Court of Appeals erred in applying the provisions of paragraph 2 of Article 1249 of the Civil Code in the instant case. The applicable law being the Negotiable Instruments Law.

3. The Honorable Court of Appeals erred in affirming the Honorable Trial Court's findings that the petitioner was guilty of negligence and delay in the performance of its obligation to the private respondent.

4. The Honorable Court of Appeals erred in affirming the Honorable Trial Court's decision ordering petitioner to pay legal interest and the cost of suit.

5. The Honorable Court of Appeals erred in affirming the Honorable Trial Court's dismissal of petitioner's third-party complaint against BPI.

These issues may be synthesized into three:

1. WHETHER OR NOT ARTICLE 1249 OF THE NEW CIVIL CODE APPLIES IN THE PRESENT CASE;

2. WHETHER OR NOT "BPI CHECK NO. 513397" WAS VALIDLY DISCHARGED; and

3. WHETHER OR NOT THE DISMISSAL OF THE THIRD PARTY COMPLAINT OF PETITIONER AGAINST BPI BY REASON OF LIS PENDENS WAS PROPER?

On the first issue, petitioner contends that the provisions of the Negotiable Instruments Law (NIL) are the pertinent laws to govern its money market transaction with private respondent, and not paragraph 2 of Article 1249 of the Civil Code. Petitioner stresses that it had already been discharged from the liability of paying the value of the CHECK due to the following circumstances:

1) There was "ACCEPTANCE" of the subject check by BPI, the drawee bank, as defined under the Negotiable Instruments Law, and therefore, BPI, the drawee bank, became primarily liable for the payment of the check, and consequently, the drawer, herein petitioner, was discharged from its liability thereon;

2) Moreover, BPI, the drawee bank, has not validly DISHONORED the subject check; and,

3) The act of BPI, the drawee bank of debiting/deducting the value of the check from petitioner's account amounted to and/or constituted a discharge of the drawer's (petitioner's) liability under the instrument/subject check. 9

Petitioner cites Section 137 of the Negotiable Instruments Law, which states:

Liability of drawee retaining or destroying bill — Where a drawee to whom a bill is delivered for acceptance destroys the same, or refuses within twenty-four hours after such delivery or such other period as the holder may allow, to return the bill accepted or non-accepted to the Holder, he will be deemed to have accepted the same.

Petitioner asserts that since BPI accepted the instrument, the bank became primarily liable for the payment of the CHECK. Consequently, when BPI offset the value of CHECK against the losses from the forged checks allegedly committed by the private respondent, the check was deemed paid.

Art. 1249 of the New Civil Code deals with a mode of extinction of an obligation and expressly provides for the medium in the "payment of debts." It provides that:

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.

In the meantime, the action derived from the original obligation shall be held in abeyance.

Considering the nature of a money market transaction, the above-quoted provision should be applied in the present controversy. As held in Perez vs. Court of Appeals, 10 a "money market is 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. 11

In the case at bar, the money market transaction between the petitioner and the private respondent is in the nature of a loan. The private respondent 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." These facts were testified to by BPI's manager. Under these circumstances, and after the notice of dishonor, 12 the holder has an immediate right of recourse against the drawer, 13 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. In the case of Philippine Airlines, Inc. vs. Court of Appeals, 14 this Court held:

Since a negotiable instrument is only a substitute for money and not money, the delivery of such an instrument does not, by itself, operate as payment (citation omitted). A check, whether a manager's check or ordinary check, is not legal tender, and an offer of a check in payment of a debt is not a valid tender of payment and may be refused receipt by the obligee or creditor. 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 (Art. 1249, Civil Code, par. 3.) 15

Turning now to the second issue, when the bank deducted the amount of the CHECK from CIFC's current account, this did not ipso facto operate as a discharge or payment of the instrument. Although the value of the CHECK was deducted from the funds of CIFC, it was not delivered to the payee, Vicente Alegre. Instead, BPI offset the amount against the losses it incurred from forgeries of CIFC checks, allegedly committed by Alegre. The confiscation of the value of the check was agreed upon by CIFC and BPI. The parties intended to amicably settle the collection suit filed by CIFC with the RTC-Makati, Branch 147, by entering into a compromise agreement, which reads:

xxx xxx xxx

2. Thereupon, defendant shall debit the sum of P514,390.94 from the aforesaid current account representing payment/discharge of BPI Check No. 513397 payable to Vicente Alegre.

3. In case plaintiff is adjudged liable to Vicente Alegre in Civil Case No. 92-515 arising from the alleged dishonor of BPI Check No. 513397, plaintiff cannot go after the defendant; otherwise stated, the defendant shall not be liable to the plaintiff. Plaintiff however (sic) set-up the defense of payment/discharge stipulated in par. 2
above. 16

A compromise is a contract whereby the parties, by making reciprocal concessions, avoid a litigation or put an end to one already commenced. 17 It is an agreement between two or more persons who, for preventing or putting an end to a lawsuit, adjust their difficulties by mutual consent in the manner which they agree on, and which everyone of them prefers in the hope of gaining, balanced by the danger of losing. 18 The compromise agreement could not bind a party who did not sign the compromise agreement nor avail of its benefits. 19 Thus, the stipulations in the compromise agreement is unenforceable against Vicente Alegre, not a party thereto. His money could not be the subject of an agreement between CIFC and BPI. Although Alegre's money was in custody of the bank, the bank's possession of it was not in the concept of an owner. BPI cannot validly appropriate the money as its own. The codal admonition on this issue is clear:

Art. 1317 —

No one may contract in the name of another without being authorized by the latter, or unless he has by law a right to represent him.

A Contract entered into in the name of another by one who has no authority or legal representation, or who has acted beyond his powers, shall be unenforceable, unless it is ratified, expressly or impliedly, by the person on whose behalf it has been executed, before it is revoked by the other contracting party. 20

BPI's confiscation of Alegre's money constitutes garnishment without the parties going through a valid proceeding in court. Garnishment is an attachment by means of which the plaintiff seeks to subject to his claim the property of the defendant in the hands of a third person or money owed to such third person or a garnishee to the defendant. 21 The garnishment procedure must be upon proper order of RTC-Makati, Branch 62, the court who had jurisdiction over the collection suit filed by BPI against Alegre. In effect, CIFC has not yet tendered a valid payment of its obligation to the private respondent. Tender of payment involves a positive and unconditional act by the obligor of offering legal tender currency as payment to the obligee for the former's obligation and demanding that the latter accept the same. 22 Tender of payment cannot be presumed by a mere inference from surrounding circumstances.

With regard to the third issue, for litis pendentia to be a ground for the dismissal of an action, the following requisites must concur: (a) identity of parties or at least such as to represent the same interest in both actions; (b) identity of rights asserted and relief prayed for, the relief being founded on the same acts; and (c) the identity in the two cases should be such that the judgment which may be rendered in one would, regardless of which party is successful, amount to res judicata in the other. 23

The trial court's ruling as adopted by the respondent court states, thus:

A perusal of the complaint in Civil Case No. 92-1940, entitled Cebu International Finance Corporation vs. Bank of the Philippine Islands now pending before Branch 147 of this Court and the Third Party Complaint in the instant case would readily show that the parties are not only identical but also the cause of action being asserted, which is the recovery of the value of BPI Check No. 513397 is the same. In Civil Case No. 92-1940 and in the Third Party Complaint the rights asserted and relief prayed for, the reliefs being founded on the facts, are identical.

xxx xxx xxx

WHEREFORE, the motion to dismiss is granted and consequently, the Third Party Complaint is hereby ordered dismissed on ground of lis pendens. 24

We agree with the observation of the respondent court that, as between the third party claim filed by the petitioner against BPI in Civil Case No. 92-515 and petitioner's ancillary claim against the bank in Civil Case No. 92-1940, there is identity of parties as well as identity of rights asserted, and that any judgment that may be rendered in one case will amount to res judicata in another.

The compromise agreement between CIFC and BPI, categorically provided that "In case plaintiff is adjudged liable to Vicente Alegre in Civil Case No. 92-515 arising from the alleged dishonor of BPI Check No. 513397, plaintiff (CIFC) cannot go after the defendant (BPI); otherwise stated, the defendant shall not be liable to the plaintiff." 25 Clearly, this stipulation expressed that CIFC had already abandoned any further claim against BPI with respect to the value of BPI Check No. 513397. To ask this Court to allow BPI to be a party in the case at bar, would amount to res judicata and would violate terms of the compromise agreement between CIFC and BPI. The general rule is that a compromise has upon the parties the effect and authority of res judicata, with respect to the matter definitely stated therein, or which by implication from its terms should be deemed to have been included therein. 26 This holds true even if the agreement has not been judicially approved. 27

WHEREFORE, the instant petition is hereby DENIED. The Decision of the Court of Appeals in CA-G.R. CV No. 44085 is AFFIRMED. Costs against petitioner.1âwphi1.nêt

SO ORDERED.

Mendoza and Buena, JJ., concur.

Bellosillo, J., on official leave.

Insurance Case Digest: Malayan Insurance Co., Inc. v. Arnaldo (1987)

G.R. No. L-67835 October 12, 1987

Lessons Applicable: Authority to Receive Payment/Effect of Payment (Insurance)

Laws Applicable: Article 64, Article 65, Section 77, Section 306 of the Insurance Code

FACTS:

• June 7, 1981: Malayan insurance co., inc. (MICO)  issued to Coronacion Pinca, Fire Insurance Policy for her property effective July 22, 1981, until July 22, 1982
  
• October 15,1981: MICO allegedly cancelled the policy for non-payment, of the premium and sent the corresponding notice to Pinca
• December 24, 1981: payment of the premium for Pinca was received by Domingo Adora, agent of MICO
• January 15, 1982: Adora remitted this payment to MICO,together with other payments
• January 18, 1982: Pinca's property was completely burned
• February 5, 1982: Pinca's payment was returned by MICO to Adora on the ground that her policy had been cancelled earlier but Adora refused to accept  it and instead demanded for payment
• Under Section 416 of the Insurance Code, the period for appeal is thirty days from notice of the decision of the Insurance Commission. The petitioner filed its motion for reconsideration on April 25, 1981, or fifteen days such notice, and the reglementary period began to run again after June 13, 1981, date of its receipt of notice of the denial of the said motion for reconsideration. As the herein petition was filed on July 2, 1981, or nineteen days later, there is no question that it is tardy by four days.
• Insurance Commission: favored Pinca
• MICO appealed

ISSUE: W/N MICO should be liable because its agent Adora was authorized to receive it

HELD: YES. petition is DENIED

• SEC. 77.    An insurer is entitled to payment of the premium as soon as the thing is exposed to the peril insured against. Notwithstanding any agreement to the contrary, no policy or contract of insurance issued by an insurance company is valid and binding unless and until the premium thereof has been paid, except in the case of a life or an industrial life policy whenever the grace period provision applies.
• SEC. 306.   xxx  xxx   xxx

Any insurance company which delivers to an insurance agant or insurance broker a policy or contract of insurance shall be demmed to have authorized such agent or broker to receive on its behalf payment of any premium which is due on such policy or contract of insurance at the time of its issuance or delivery or which becomes due thereon.

• Payment to an agent having authority to receive or collect payment is equivalent to payment to the principal himself; such payment is complete when the money delivered is into the agent's hands and is a discharge of the indebtedness owing to the principal.
• SEC. 64.    No policy of insurance other than life shall be cancelled by the insurer except upon prior notice thereof to the insured, and no notice of cancellation shall be effective unless it is based on the occurrence, after the effective date of the policy, of one or more of the following:

(a)    non-payment of premium;

(b)    conviction of a crime arising out of acts increasing the hazard insured against;

(c)    discovery of fraud or material misrepresentation;

(d)    discovery of willful, or reckless acts or commissions increasing the hazard insured against;

(e)    physical changes in the property insured which result in the property becoming uninsurable;or

(f)     a determination by the Commissioner that the continuation of the policy would violate or would place the insurer in violation of this Code.

As for the method of cancellation, Section 65 provides as follows:

• SEC. 65.    All notices of cancellation mentioned in the preceding section shall be in writing, mailed or delivered to the named insured at the address shown in the policy, and shall state (a) which of the grounds set forth in section sixty-four is relied upon and (b) that, upon written request of the named insured, the insurer will furnish the facts on which the cancellation is based.
• A valid cancellation must, therefore, require concurrence of the following conditions:

(1)    There must be prior notice of cancellation to the insured; 

(2)    The notice must be based on the occurrence, after the effective date of the policy, of one or more of the grounds mentioned;

(3)    The notice must be (a) in writing, (b) mailed, or delivered to the named insured, (c) at the address shown in the policy; 

(4)    It must state (a) which of the grounds mentioned in Section 64 is relied upon and (b) that upon written request of the insured, the insurer will furnish the facts on which the cancellation is based. 

• All MICO's offers to show that the cancellation was communicated to the insured is its employee's testimony that the said cancellation was sent "by mail through our mailing section." without more
• It stands to reason that if Pinca had really received the said notice, she would not have made payment on the original policy on December 24, 1981. Instead, she would have asked for a new insurance, effective on that date and until one year later, and so taken advantage of the extended period.
• Incidentally, Adora had not been informed of the cancellation either and saw no reason not to accept the said payment 
• Although Pinca's payment was remitted to MICO's by its agent on January 15, 1982, MICO sought to return it to Adora only on February 5, 1982, after it presumably had learned of the occurrence of the loss insured against on January 18, 1982 make the motives of MICO highly suspicious

Jurisprudence: G.R. No. L-67835

FIRST DIVISION

G.R. No. L-67835 October 12, 1987

MALAYAN INSURANCE CO., INC. (MICO), petitioner,

vs.

GREGORIA CRUZ ARNALDO, in her capacity as the INSURANCE COMMISSIONER, and CORONACION PINCA, respondents.

CRUZ, J.:

When a person's house is razed, the fire usually burns down the efforts of a lifetime and forecloses hope for the suddenly somber future. The vanished abode becomes a charred and painful memory. Where once stood a home, there is now, in the sighing wisps of smoke, only a gray desolation. The dying embers leave ashes in the heart.

For peace of mind and as a hedge against possible loss, many people now secure fire insurance. This is an aleatory contract. By such insurance, the insured in effect wagers that his house will be burned, with the insurer assuring him against the loss, for a fee. If the house does burn, the insured, while losing his house, wins the wagers. The prize is the recompense to be given by the insurer to make good the loss the insured has sustained.

It would be a pity then if, having lost his house, the insured were also to lose the payment he expects to recover for such loss. Sometimes it is his fault that he cannot collect, as where there is a defect imputable to him in the insurance contract. Conversely, the reason may be an unjust refusal of the insurer to acknowledge a just obligation, as has happened many times.

In the instant case the private respondent has been sustained by the Insurance Commission in her claim for compensation for her burned property. The petitioner is now before us to dispute the decision, 1 on the ground that there was no valid insurance contract at the time of the loss.

The chronology of the relevant antecedent facts is as follows:

On June 7, 1981, the petitioner (hereinafter called (MICO) issued to the private respondent, Coronacion Pinca, Fire Insurance Policy No. F-001-17212 on her property for the amount of P14,000.00 effective July 22, 1981, until July 22, 1982. 2

On October 15,1981, MICO allegedly cancelled the policy for non-payment, of the premium and sent the corresponding notice to Pinca. 3

On December 24, 1981, payment of the premium for Pinca was received by DomingoAdora, agent of MICO. 4

On January 15, 1982, Adora remitted this payment to MICO,together with other payments. 5

On January 18, 1982, Pinca's property was completely burned. 6

On February 5, 1982, Pinca's payment was returned by MICO to Adora on the ground that her policy had been cancelled earlier. But Adora refused to accept it. 7

In due time, Pinca made the requisite demands for payment, which MICO rejected. She then went to the Insurance Commission. It is because she was ultimately sustained by the public respondent that the petitioner has come to us for relief.

From the procedural viewpoint alone, the petition must be rejected. It is stillborn.

The records show that notice of the decision of the public respondent dated April 5, 1982, was received by MICO on April 10, 1982. 8 On April 25, 1982, it filed a motion for reconsideration, which was denied on June 4, 1982. 9 Notice of this denial was received by MICO on June 13, 1982, as evidenced by Annex "1" duly authenticated by the Insurance Commission. 10 The instant petition was filed with this Court on July 2, 1982. 11

The position of the petition is that the petition is governed by Section 416 0f the Insurance Code giving it thirty days wthin which to appeal by certiorari to this Court. Alternatively, it also invokes Rule 45 of the Rules of Court. For their part, the public and private respondents insist that the applicable law is B.P. 129, which they say governs not only courts of justice but also quasi-judicial bodies like the Insurance Commission. The period for appeal under this law is also fifteen days, as under Rule 45.

The pivotal date is the date the notice of the denial of the motion for reconsideration was received by MICO.

MICO avers this was June 18, 1982, and offers in evidence its Annex "B," 12 which is a copy of the Order of June 14, 1982, with a signed rubber-stamped notation on the upper left-hand corner that it was received on June 18, 1982, by its legal department. It does not indicate from whom. At the bottom, significantly, there is another signature under which are the ciphers "6-13-82," for which no explanation has been given.

Against this document, the private respodent points in her Annex "1," 13 the authenticated copy of the same Order with a rubber-stamped notation at the bottom thereof indicating that it was received for the Malayan Insurance Co., Inc. by J. Gotladera on "6-13-82." The signature may or may not habe been written by the same person who signed at the bottom of the petitioner's Annex "B."

Between the two dates, the court chooses to believe June 13, 1982, not only because the numbers "6-13-82" appear on both annexes but also because it is the date authenticated by the administrative division of the Insurance Commission. Annex "B" is at worst self-serving; at best, it might only indicate that it was received on June 18, 1982, by the legal department of MICO, after it had been received earlier by some other of its personnel on June 13, 1982. Whatever the reason for the delay in transmitting it to the legal department need not detain us here.

Under Section 416 of the Insurance Code, the period for appeal is thirty days from notice of the decision of the Insurance Commission. The petitioner filed its motion for reconsideration on April 25, 1981, or fifteen days such notice, and the reglementary period began to run again after June 13, 1981, date of its receipt of notice of the denial of the said motion for reconsideration. As the herein petition was filed on July 2, 1981, or nineteen days later, there is no question that it is tardy by four days.

Counted from June 13, the fifteen-day period prescribed under Rule 45, assuming it is applicable, would end on June 28, 1982, or also four days from July 2, when the petition was filed.

If it was filed under B.P. 129, then, considering that the motion for reconsideration was filed on the fifteenth day after MICO received notice of the decision, only one more day would have remained for it to appeal, to wit, June 14, 1982. That would make the petition eighteen days late by July 2.

Indeed, even if the applicable law were still R.A. 5434, governing appeals from administrative bodies, the petition would still be tardy. The law provides for a fixed period of ten days from notice of the denial of a seasonable motion for reconsideration within which to appeal from the decision. Accordingly, that ten-day period, counted from June 13, 1982, would have ended on June 23, 1982, making the petition filed on July 2, 1982, nine days late.

Whichever law is applicable, therefore, the petition can and should be dismissed for late filing.

On the merits, it must also fail. MICO's arguments that there was no payment of premium and that the policy had been cancelled before the occurence of the loss are not acceptable. Its contention that the claim was allowed without proof of loss is also untenable.

The petitioner relies heavily on Section 77 of the Insurance Code providing that:

SEC. 77.    An insurer is entitled to payment of the premium as soon as the thing is exposed to the peril insured against. Notwithstanding any agreement to the contrary, no policy or contract of insurance issued by an insurance company is valid and binding unless and until the premium thereof has been paid, except in the case of a life or an industrial life policy whenever the grace period provision applies.

The above provision is not applicable because payment of the premium was in fact eventually made in this case. Notably, the premium invoice issued to Pinca at the time of the delivery of the policy on June 7, 1981 was stamped "Payment Received" of the amoung of P930.60 on "12-24-81" by Domingo Adora. 14 This is important because it suggests an understanding between MICO and the insured that such payment could be made later, as agent Adora had assured Pinca. In any event, it is not denied that this payment was actually made by Pinca to Adora, who remitted the same to MICO.

The payment was made on December 24, 1981, and the fire occured on January 18, 1982. One wonders: suppose the payment had been made and accepted in, say, August 1981, would the commencement date of the policy have been changed to the date of the payment, or would the payment have retroacted to July 22, 1981? If MICO accepted the payment in December 1981 and the insured property had not been burned, would that policy not have expired just the same on July 22, 1982, pursuant to its original terms, and not on December 24, 1982?

It would seem from MICO's own theory, that the policy would have become effective only upon payment, if accepted and so would have been valid only from December 24, 1981m but only up to July 22, 1981, according to the original terms. In others words, the policy would have run for only eight months although the premium paid was for one whole year.

It is not disputed that the preium was actually paid by Pinca to Adora on December 24, 1981, who received it on behalf of MICO, to which it was remitted on January 15, 1982. What is questioned is the validity of Pinca's payment and of Adora's authority to receive it.

MICO's acknowledgment of Adora as its agent defeats its contention that he was not authorized to receive the premium payment on its behalf. It is clearly provided in Section 306 of the Insurance Code that:

SEC. 306.   xxx  xxx   xxx

Any insurance company which delivers to an insurance agant or insurance broker a policy or contract of insurance shall be demmed to have authorized such agent or broker to receive on its behalf payment of any premium which is due on such policy or contract of insurance at the time of its issuance or delivery or which becomes due thereon.

And it is a well-known principle under the law of agency that:

Payment to an agent having authority to receive or collect payment is equivalent to payment to the principal himself; such payment is complete when the money delivered is into the agent's hands and is a discharge of the indebtedness owing to the principal. 15

There is the petitioner's argument, however, that Adora was not authorized to accept the premium payment because six months had elapsed since the issuance by the policy itself. It is argued that this prohibition was binding upon Pinca, who made the payment to Adora at her own riskl as she was bound to first check his authority to receive it. 16

MICO is taking an inconsistent stand. While contending that acceptance of the premium payment was prohibited by the policy, it at the same time insists that the policy never came into force because the premium had not been paid. One surely, cannot have his cake and eat it too.

We do not share MICO's view that there was no existing insurance at the time of the loss sustained by Pinca because her policy never became effective for non-payment of premium. Payment was in fact made, rendering the policy operative as of June 22, 1981, and removing it from the provisions of Article 77, Thereafter, the policy could be cancelled on any of the supervening grounds enumerated in Article 64 (except "nonpayment of premium") provided the cancellation was made in accordance therewith and with Article 65.

Section 64 reads as follows:

SEC. 64.    No policy of insurance other than life shall be cancelled by the insurer except upon prior notice thereof to the insured, and no notice of cancellation shall be effective unless it is based on the occurrence, after the effective date of the policy, of one or more of the following:

(a)    non-payment of premium;

(b)    conviction of a crime arising out of acts increasing the hazard insured against;

(c)    discovery of fraud or material misrepresentation;

(d)    discovery of willful, or reckless acts or commissions increasing the hazard insured against;

(e)    physical changes in the property insured which result in the property becoming uninsurable;or

(f)     a determination by the Commissioner that the continuation of the policy would violate or would place the insurer in violation of this Code.

As for the method of cancellation, Section 65 provides as follows:

SEC. 65.    All notices of cancellation mentioned in the preceding section shall be in writing, mailed or delivered to the named insured at the address shown in the policy, and shall state (a) which of the grounds set forth in section sixty-four is relied upon and (b) that, upon written request of the named insured, the insurer will furnish the facts on which the cancellation is based.

A valid cancellation must, therefore, require concurrence of the following conditions:

(1)    There must be prior notice of cancellation to the insured; 17

(2)    The notice must be based on the occurrence, after the effective date of the policy, of one or more of the grounds mentioned;18

(3)    The notice must be (a) in writing, (b) mailed, or delivered to the named insured, (c) at the address shown in the policy; 19

(4)    It must state (a) which of the grounds mentioned in Section 64 is relied upon and (b) that upon written request of the insured, the insurer will furnish the facts on which the cancellation is based. 20

MICO's claims it cancelled the policy in question on October 15, 1981, for non-payment of premium. To support this assertion, it presented one of its employees, who testified that "the original of the endorsement and credit memo" — presumably meaning the alleged cancellation — "were sent the assured by mail through our mailing section" 21 However, there is no proof that the notice, assuming it complied with the other requisites mentioned above, was actually mailed to and received by Pinca. All MICO's offers to show that the cancellation was communicated to the insured is its employee's testimony that the said cancellation was sent "by mail through our mailing section." without more. The petitioner then says that its "stand is enervated (sic) by the legal presumption of regularity and due performance of duty." 22 (not realizing perhaps that "enervated" means "debilitated" not "strengthened").

On the other hand, there is the flat denial of Pinca, who says she never received the claimed cancellation and who, of course, did not have to prove such denial Considering the strict language of Section 64 that no insurance policy shall be cancelled except upon prior notice, it behooved MICO's to make sure that the cancellation was actually sent to and received by the insured. The presumption cited is unavailing against the positive duty enjoined by Section 64 upon MICO and the flat denial made by the private respondent that she had received notice of the claimed cancellation.

It stands to reason that if Pinca had really received the said notice, she would not have made payment on the original policy on December 24, 1981. Instead, she would have asked for a new insurance, effective on that date and until one year later, and so taken advantage of the extended period. The Court finds that if she did pay on that date, it was because she honestly believed that the policy issued on June 7, 1981, was still in effect and she was willing to make her payment retroact to July 22, 1981, its stipulated commencement date. After all, agent Adora was very accomodating and had earlier told her "to call him up any time" she was ready with her payment on the policy earlier issued. She was obviously only reciprocating in kind when she paid her premium for the period beginning July 22, 1981, and not December 24, 1981.

MICO's suggests that Pinca knew the policy had already been cancelled and that when she paid the premium on December 24, 1981, her purpose was "to renew it." As this could not be done by the agent alone under the terms of the original policy, the renewal thereof did not legally bind MICO. which had not ratified it. To support this argument, MICO's cites the following exchange:

Q:     Now, Madam Witness, on December 25th you made the alleged payment. Now, my question is that, did it not come to your mind that after the lapse of six (6) months, your policy was cancelled?

A:     I have thought of that but the agent told me to call him up at anytime.

Q:     So if you thought that your policy was already intended to revive cancelled policy?

A:     Misleading, Your Honor.

Hearing Officer: The testimony of witness is that, she thought of that.

Q:     I will revise the question. Now, Mrs. Witness, you stated that you thought the policy was cancelled. Now, when you made the payment of December 24, 1981, your intention was to revive the policy if it was already cancelled?

A:     Yes, to renew it. 23

A close study of the above transcript will show that Pinca meant to renew the policy if it had really been already cancelled but not if it was stffl effective. It was all conditional. As it has not been shown that there was a valid cancellation of the policy, there was consequently no need to renew it but to pay the premium thereon. Payment was thus legally made on the original transaction and it could be, and was, validly received on behalf of the insurer by its agent Adora. Adora. incidentally, had not been informed of the cancellation either and saw no reason not to accept the said payment.

The last point raised by the petitioner should not pose much difficulty. The valuation fixed in fire insurance policy is conclusive in case of total loss in the absence of fraud, 24 which is not shown here. Loss and its amount may be determined on the basis of such proof as may be offered by the insured, which need not be of such persuasiveness as is required in judicial proceedings. 25 If, as in this case, the insured files notice and preliminary proof of loss and the insurer fails to specify to the former all the defects thereof and without unnecessary delay, all objections to notice and proof of loss are deemed waived under Section 90 of the Insurance Code.

The certification 26 issued by the Integrated National Police, Lao-ang, Samar, as to the extent of Pinca's loss should be considered sufficient. Notably,MICO submitted no evidence to the contrary nor did it even question the extent of the loss in its answer before the Insurance Commission. It is also worth observing that Pinca's property was not the only building bumed in the fire that razed the commercial district of Lao-ang, Samar, on January 18, 1982. 27

There is nothing in the Insurance Code that makes the participation of an adjuster in the assessment of the loss imperative or indespensable, as MICO suggests. Section 325, which it cites, simply speaks of the licensing and duties of adjusters.

We see in this cases an obvious design to evade or at least delay the discharge of a just obligation through efforts bordering on bad faith if not plain duplicity, We note that the motion for reconsideration was filed on the fifteenth day from notice of the decision of the Insurance Commission and that there was a feeble attempt to show that the notice of denial of the said motion was not received on June 13, 1982, to further hinder the proceedings and justify the filing of the petition with this Court fourteen days after June 18, 1982. We also look askance at the alleged cancellation, of which the insured and MICO's agent himself had no knowledge, and the curious fact that although Pinca's payment was remitted to MICO's by its agent on January 15, 1982, MICO sought to return it to Adora only on February 5, 1982, after it presumably had learned of the occurrence of the loss insured against on January 18, 1982. These circumstances make the motives of the petitioner highly suspect, to say the least, and cast serious doubts upon its candor and bona fides.

WHEREFORE, the petition is DENIED. The decision of the Insurance Commission dated April 10, 1981, and its Order of June 4, 1981, are AFFIRMED in full, with costs against the petitioner. This decision is immediately executory.

SO ORDERED.

Teehankee, C.J., Narvasa and Paras, JJ., concur.

Gancayco, J, is on leave.

Footnotes

1      I.C. Case No. 2698.

2      Rollo, p. 2.

3      Ibid., p. 3.

4      Decision, p. 6.

5      Ibid.

6      Id., p. 19, Rollo, pp. 3, 38.

7      Rollo, pp. 3-4.

8      Ibid., p. 41.

9      Annex "B", Petition; Rollo, p. 34.

10     Rollo, p. 106.

11     Ibid., pp. 2, 95, 100.

12     Id., p.58.

13     Id., p. 106.

14     Id., pp. 12-13, 31; Original Records. p. 7.

15     Maryland Casualty Co. v. U.S. 342, 64 ed 291, 13 Am. Jur. 2d. p. 630:

16     Memorandum for the Petitioner, p. 8.

17     Insurance Code, Sec. 64.

18     Ibid.

19     Id., Sec. 65.

20     Id.

21     Memorandum for the Petitioner, p. 12.

22     Ibid., p. 13.

23     Id., pp. 13-14.

24     Insurance Code, Secs. 171 and 156; Harding v. Commercial Union Insurance Co., Phil. 484.

25     Insurance Code, Sec. 89.

26     Exh. "C".

27     Original Records, p. 9.

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
• 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