CORAZON PEREZ, petitioner, vs. HON. COURT OF APPEALS P200,000.

00 was sold on July 3, 1974 to a third party, but

and MEVER FILMS, INCORPORATED, respondents. not naming CORAZON as the third party.

1984 Feb 20 10. On October 8, 1974, CONGENERIC confirmed in

1st Division writing to MEVER the previous "sale" of P200,000.00 out
G.R. No. L-56101 of the P500,000.00 amount of NCI-0352; and advised that
it could not take account of the assignment to MEVER of
DECISION Bill 1298 and Bill 1419.

11. On November 15, 1974, MEVER turned over to the

MELENCIO-HERRERA, J.: Provincial Sheriff of Rizal (Exhibit "5"), the sum of
P79,359.75, which MEVER had computed as the amount it
This is a Petition for Review on Certiorari of a Decision of was still owing CONGENERIC and which was subject to
the then Court of Appeals. The relevant facts of the case garnishment.
may be stated as follows:
12. (a) On October 23, 1974, CONGENERIC filed a
1. CONGENERIC Development & Finance Corporation is, Petition for Suspension of Payments in Civil Case No.
or was, a company engaged in "money market" 20212 of the Court of First Instance of Rizal. In that
operations petition, MEVER was listed as a debtor.
(b) On November 11, 1974, the Court issued an order
2. (a) On May 8, 1974, CONGENERIC issued what was in enjoining CONGENERIC from making any payment to
effect a promissory note in the amount of P111,973.58 in creditors.
favor of bearer No. 049, later identified as Ramon C.
MOJICA, or an entity owned by him. That promissory note, 13. In subsequent proceedings in Civil Case No. 20212,
denominated hereinafter as Bill 1298, was to mature on the Court promulgated an Order, dated January 24, 1975
August 6, 1974. (Exhibit "10"), to the effect that MEVER was not a debtor
(b) On May 15, 1974, CONGENERIC issued another of CONGENERIC, and said Order has become final.
bearer promissory note for the sum of P208,666.67, also
in favor of MOJICA or an entity owned by him. The note, 14. (a) On July 14, 1975, CORAZON filed suit before the
denominated hereinafter as Bill 1419, was to mature on Court of First Instance of Rizal against MEVER for the
August 13, 1974. recovery of P100,000.00, plus interest, damages, and
attorney's fees. She admits that CS-0366 issued to her by
3. On June 5, 1974, MEVER Films, Inc. the private CONGENERIC was a "without recourse" instrument.
respondent herein, borrowed P500,000.00 from (b) The Trial Court rendered judgment in favor of
CONGENERIC, the former issuing in favor of the latter a CORAZON and, upon her filing a bond, she was able to
negotiable promissory note to mature on August 5, 1974. have execution pending appeal. MEVER had to pay her
That note shall hereinafter be referred to as NCI-0352. P131,166.00 under the Trial Court's judgment.
What may be stated in connection with the note is that it (c) On Mever's appeal, the Court of Appeals reversed
had no provision for interest, except that, if not paid on the judgment of the Trial Court.
due date, it would be subject to interest at 14% per
annum. Before us, petitioner has made the following Assignments
of Error:
4. On July 3, 1974, CONGENERIC received P200,000.00
from petitioner herein (CORAZON, for short), and issued to A.
her, as BEARER 209, a confirmation of sale (CS) numbered "Respondent Court of Appeals erred gravely in applying
0366. Under the terms of CS-0366, CORAZON was to be Article 1626 of the Civil Code, which refers to a debtor
paid P203,483.33 on August 5, 1974, CONGENERIC would who pays his creditor before knowledge of an assignment,
make collection on behalf of CORAZON; and ALL OF when what is involved principally in the case at bar is
CONGENERIC'S INTEREST IN NCI-0352 WAS BEING compensation rather than payment.
TRANSFERRED TO HER. Under this last provision,
CORAZON, subject to defenses, could have sued MEVER B.
for payment of the full amount of P500,000.00, specially if "Respondent Court of Appeals erred gravely in completely
CONGENERIC should not object. It may also be noted that disregarding the essentially impersonal, fluid and mobile
while NCI-0352 was not subject to interest prior to August nature of money market transactions.
5, 1974, CONGENERIC obligated itself to pay CORAZON
interest on August 5, 1974 in the amount of P3,483.33, or C.
roughly an interest rate of 19% per annum. "Respondent Court of Appeals erred gravely in completely
disregarding the vital circumstance that respondent
5. (a) On August 5, 1974, MEVER paid P100,000.00 to Mever Films, Inc. necessarily consented in advance to the
CONGENERIC on account of NCI-0352. purchase by petitioner Corazon Perez of part of its
(b) On the same date of August 5, 1974, obligation under its Negotiable Certificate of Indebtedness
CONGENERIC paid CORAZON the sum of P103,483.33, the (NCI).
P3,483.33 coming from its own funds.
D.
6. (a) On August 6, 1974, CONGENERIC paid MOJICA the "Respondent Court of Appeals erred gravely in applying
interest due on Bill 1298, the principal being rolled-over to the third parag. of Article 1285 of the Civil Code allowing
mature on October 4, 1974. The roll-over was annotated compensation of credits if assignment of credit is made
on the original of Bill 1298. without knowledge of the debtor, and in not applying the
(b) On August 13, 1974, CONGENERIC paid MOJICA the first paragraph of said Article 1285 barring the defense of
interest due on Bill 1419, the principal being rolled-over to compensation where the debtor has consented to the
mature on October 11, 1974. The roll-over was annotated assignment of rights in favor of a third person.
on Bill 1419.
E.
7. On September 9, 1974, MOJICA assigned Bill 1298 and "Respondent Court of Appeals erred gravely in holding
Bill 1419 to MEVER through a notarized deed. that compensation had set in and reduced respondent
Mever's obligation to P79,359.75.
8. On October 3, 1974, MEVER surrendered the originals
of Bill 1298 and Bill 1419 to CONGENERIC, and asked the F.
latter to compute the balance of the account of MEVER "Respondent Court of Appeals erred gravely in holding
with CONGENERIC, taking account of the amounts of the that payment by respondent Mever of P79,359.75 to the
two Bills, which balance MEVER would then pay. Sheriff in connection with garnishment in certain civil
cases against Congeneric extinguished Mever's obligation
9. (a) On October 7, 1974, MEVER was served with and could be set up as another defense to the claim of
garnishment by the Provincial Sheriff of Rizal in two petitioner Corazon Perez.
collection cases filed against CONGENERIC by two of its
creditors whose credits totaled P185,693.78. G.
(b) On the same date of October 7, 1974, "Respondent Court of Appeals erred gravely in reversing
CONGENERIC advised MEVER by telephone that of the the decision of the Trial Court, in denying the motion for
original amount of P500,000.00 of NCI-0352, the sum of reconsideration of petitioner Corazon Perez, and in
granting respondent Mever's motion for resolution and/or "Appellant correctly invoked compensation as a defense,
clarification by ordering refund of P139,141.63 with for under Article 1285, 3rd paragraph —
interest at 14% per annum, and ordering payment of
P10,000.00 as attorney's fees." 1 'If the assignment is made without the knowledge of the
debtor, he may set up compensation of all credits prior to
The foregoing take issue with the following observations the same and also later ones until he had knowledge of
and findings of respondent Appellate Court: the assignment.'"

". . . We agree with the appellant (MEVER) that there was If, in fact, Bill No. 1298 and Bill No. 1419 were due and
legal compensation under Article 1279 of the New Civil demandable on September 9, 1974, the date of the
Code which caused the extinguishment of the obligation assignment from MOJICA to MEVER, or on October 3,
under Negotiable Certificate of Indebtedness No. 0352. 1974, the date of surrender of said Bills by MEVER to
CONGENERIC, it could be rightfully said that legal
"The original obligation of defendant-appellant to compensation had taken place. As pointed out by
Congeneric is P500,000.00 (Exhibit '1') out of which it paid CORAZON, however, said two bills contain the following
P100,000.00 on the maturity date of the note leaving a notations:
balance of P400,000.00.
"Bill No. 1298 — Paid 8/6/74 interest only, principal roll
"By a Deed of Assignment dated September 9, 1974 over up to 10/4/74 (Annexes A-1, A-2, Petitioner's Reply
executed by Ramon C. Mojica in favor of the appellant Brief; Exh. 3, Folder of Exhibits).
(Exhibit '2'), the latter acquired the rights of the assignor
to two Congeneric bills Nos. 1298 for P111,973.58 which "Bill No. 1419 — Paid 8/13/74 interest only, principal roll
matured on August 6, 1974 (Exhibit '3') and No. 1419 for over up to 10/11/74 (Annexes A, A-3, ibid.; Exh. 3-A,
P208,666.67 which matured on August 13, 1974 (Exhibit Folder of Exhibits).
'4') or a total of P320,640.25. As of September 9, 1974,
therefore, said bills were already due and demandable. Since, on the respective dates of maturity, specifically,
August 6, 1974 and August 13, 1974, respectively, Ramon
"On the other hand, appellant's obligation in favor of C. Mojica was still the holder of those bills, it can be safely
Congeneric matured on August 5, 1974. As a result assumed that it was he who had asked for the roll-overs
defendant-appellant became both a debtor and a creditor on the said dates. MEVER was bound by the roll-overs
of Congeneric. A debtor to the extent of P400,000.00 since the assignment to it was made only on September
under the Negotiable Certificate of Indebtedness (Exhibit 9, 1974. The inevitable result of the roll-overs of the
'1') and a creditor for the sum of P320,640.25. By principals was that Bill No. 1298 and Bill No. 1419 were
operation of law, there was partial compensation to the not yet due and demandable as of the date of their
extent of P320,640.25 (Articles 1281 & 1290, New Civil assignment by MOJICA to MEVER on September 9, 1974,
Code). nor as of October 3, 1974 when MEVER surrendered said
Bills to CONGENERIC. As a consequence, no legal
xxx xxx xxx compensation could have taken place because, for it to
exist, the two debts, among other requisites, must be due
"As a consequence of compensation, the obligation of and demandable.
defendant-appellant to Congeneric as of September 9,
1974 was reduced to P79,359.75. "Art. 1279. In order that compensation may be proper, it
is necessary:
"On October 7, 1974, defendant-appellant was served
notices of garnishment in connection with Civil Cases Nos. "(1) That each one of the obligors be found principally,
20043 and 20044 of the Court of First Instance of Rizal and that he be at the same time a principal creditor of the
against Congeneric. It consists in the citation of some other;
stranger to the litigation, who is debtor to one of the "(2) That both debts consist in a sum of money, or if the
parties to the action. By this means such debtor stranger things due are consumable, they be of the same kind, and
becomes a forced intervenor, and the court, having also of the same quality if the latter has been stated;
acquired jurisdiction over his person by means of the "(3) That the two debts be due;
citation, requires him to pay his debt, not to his former "(4) That they be liquidated and demandable;
creditor, but to the new creditor, who is the creditor in the "(5) That over neither of them there be any retention or
main litigation. It is merely a case of involuntary novation controversy, commenced by third persons and
by the substitution of one creditor for another (Tayabas communicated in due time to the debtor."
Land Co. vs. Sharuff, 41 Phil. 382, 387). Consequently,
defendant-appellant held the amount it still owed We note that the xerox copies of Bill No. 1298 and Bill No.
Congeneric, which is P79,359.75, as any payment to the 1419 attached by MEVER to its Brief do not contain the
creditor by the debtor after the latter has been judicially "roll-over" notations. However, MEVER's own exhibits
ordered to retain the debt shall not be valid (see Article before respondent Appellate Court, Exhibits "3" and "3-A",
1243, New Civil Code). On November 15, 1975, the do show those notations and MEVER must be held bound
garnished amount was delivered by the appellant to the by them. And although this issue may not have been
deputy sheriff (Exhibit '5'). Consequently, the balance of squarely raised below, in the interest of substantial justice
the obligation of defendant-appellant to Congeneric in the this Court is not prevented from considering such a
sum of P79,359.75 was extinguished and therefore no pivotal factual matter that had been overlooked by the
longer obligated under its Negotiable Certificate of Courts below. 2 The Supreme Court is clothed with ample
Indebtedness. authority to review palpable errors not assigned as such if
it finds that their consideration is necessary in arriving at
". . . the evidence on record disclosed no notice to a just decision. 3
defendant-appellant of the purchase by appellee of part of
defendant-appellant's obligation prior to compensation There is another aspect to this case. What is involved here
and consequently its non-liability to appellee. is a money market transaction. As defined by Lawrence
Smith "the money market is a market dealing in
"Prior to the telephone call of Mr. Dumadag to Mr. Jesus G. standardized short-term credit instruments (involving
Sanchez on October 7, 1974 disclosing the sale to large amounts) where lenders and borrowers do not deal
appellee by Congeneric of part of its promissory note, directly with each other but through a middle man or
appellant was unaware of the sale. In fact, it was the first dealer in the open market." It involves "commercial
time that it came to know of the transaction (tsn. pp. 11- papers" which are instruments "evidencing indebtedness
12 S, August 10, 1976) so much so that upon maturity of of any person or entity . . ., which are issued, endorsed,
the note on August 5, 1974, appellant made a partial sold or transferred or in any manner conveyed to another
payment of P100,000.00 not to appellee but to person or entity, with or without recourse". 4 The
Congeneric. The telephone advice to the appellant which fundamental function of the money market device in its
was confirmed in writing or October 8, 1974 was too late. operation is to match and bring together in a most
By that time the entire obligation of appellant was already impersonal manner both the "fund users" and the "fund
extinguished by payment, compensation and novation. A suppliers." The money market is an "impersonal market",
debtor who, before having knowledge of the assignment, free from personal considerations." 5 The market
pays his creditor is released from his obligation (Article mechanism is intended to provide quick mobility of money
1626, New Civil Code). and securities." 6
The impersonal character of the money market device
overlooks the individuals or entities concerned. The issuer
of a commercial paper in the money market necessarily
knows in advance that it would be expeditiously
transacted and transferred to any investor/lender without
need of notice to said issuer. In practice, no notification is
given to the borrower or issuer of commercial paper of the
sale or transfer to the investor.
Accordingly, we find no applicability herein of Article
1285, 3rd paragraph of the Civil Code. Rather, it is the
first paragraph of the same legal provision that is
applicable:

"ART. 1285. The debtor who has consented to the

assignment of rights made by a creditor in favor of a third
person, cannot set up against the assignee the
compensation which would pertain to him against the
assignor, unless the assignor was notified by the debtor at
the time he gave his consent, that he reserved his right to
the compensation."

xxx xxx xxx

There is need to individuate a money market transaction,

a relatively novel institution in the Philippine commercial
scene. It has been intended to facilitate the flow and
acquisition of capital on an impersonal basis. And as
specifically required by Presidential Decree No. 678, the
investing public must be given adequate and effective
protection in availing of the credit of a borrower in the
commercial paper market.

WHEREFORE, the judgment of respondent Appellate

Court, dated September 3, 1979 as well as its Resolution
dated January 16, 1981 is hereby reversed, and that of
the then Court of First Instance of Manila, Branch XXXI,
dated December 27, 1976, hereby reinstated.

SO ORDERED.
Teehankee (Chairman), Plana, Relova and Gutierrez, Jr.,
JJ., concur.

--------------
Footnotes
1. pp. 1-4, Petitioner's Brief.
2. Heirs of Enrique Zambales vs. CA, 120 SCRA 897
(1983).
3. Tumalad vs. Vicencio, 41 SCRA 146 (1971).
4. The Money Market Industry Today — A Question of
Survival — by Horacio T. Lava, Jr., in the PNB Quarterly, A
Supplement of the Philnabank News, Second Quarter
1978.
5. The Money Market and Monetary Management by G.
Walter Woodworth, p. 6 2nd Ed., Harper & Row, New York.
6. Woodworth, p. 5.
7. "Art. 1285. . . ..

xxx xxx xxx

"If the assignment is made without the knowledge of

the debtor, he may set up the compensation of all credits
prior to the same and also later ones until he had
knowledge of the assignment."