Cebu International Finance Corporation v.

Court of Appeals

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

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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.

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CEBU INTERNATIONAL FINANCE CORPORATION VS. CA

 G. R. No. 123031. October 12, 1999 

316 SCRA 488 

FACTS: Cebu International Finance Corporation (CIFC) is a quasi-banking

institution engaged in money market operations. On April 25, 1991, private
respondent Vicente Alegre invested with CIFC P500, 000.00 in cash. Petitioner
issued a promissory note to mature on May 27, 1991. The note for P516, 238. 67
covered private respondent’s placement plus interest at 20.5% for 32 days. On
May 27, 1991, CIFC issued BPI Check No. 513397 for P514, 390.94 in favor of the
private respondent as proceeds of his mature investment plus interest. The check
was drawn from petitioner’s current account maintained with Bank of the
Philippine Islands (BPI) main branch at Makati City. 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, 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 checking
account. BPI used the check to trace the perpetrators of the forgery. Immediately,
private respondent notified CIFC of the dishonored check and demanded that he
be paid in cash. CIFC denied the request and instead instructed private
respondent to wait for its ongoing bank reconciliation with BPI. Private
respondent made a formal demand of his money market placement. In turn,
CIFC promised to replace the check but required an impossible condition that the
original check must first be surrendered. 

On February 25, 1992, Alegre filed a complaint for recovery of sum of money
against petitioner. On July 13, 1992, CIFC sought to recover its lost funds and
formally filed against BPI a separate civil action for collection of a sum of money
with RTC- Makati Branch. It alleged that BPI unlawfully deducted from CIFC’s
checking account, counterfeit checks amounting to P1, 724, 364. 58. The action
included the prayer to collect the amount of the check paid to Alegre but
dishonored by BPI. CIFC in its response to Alegre’s complaint filed for leaver of

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court and impleaded BPI to enforce a right, for contribution and indemnity. The
court granted CIFC’s motion but upon the motion to dismiss the third-party
complaint filed by BPI, the court dismissed the third-party complaint. During the
hearing, BPI through its Manager, 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. This was alleged in accordance with
the Compromise Agreement it entered with CIFC to end the litigation in RTC-
Makati Branch. On July 27, 1993, BPI filed a separate collection suit against
Alegre, alleging that he had connived with other persons to forge several checks
of BPI’s client, amounting to P1, 724, 364.58. On September 27, 1993, RTC-Makati
Branch rendered its judgment in favor of private respondent. CIFC appealed
from the said decision, but the appellate court affirmed in toto the decision of the
lower court. 

ISSUE: Whether or not the petitioner is still liable for the payment of check even
though BPI accepted the instrument 

RULING: The Supreme Court held that the money market transaction between
the petitioner and private respondent is in the nature of loan. 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 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. Tender of payment cannot be
presumed by a mere inference from surrounding circumstances. Hence, CIFC is
still liable for the payment of the check. 

Wherefore, the assailed decision is affirmed and the petition is denied.