Commercial Cases (July 23, 2012)

Roberto Dino vs. Maria Luisa Judal-Loot

Facts: Petitioner was induced to lend a syndicate P3,000,000.00 to be secured by a real estate mortgage on several parcels of land situated in Canjulao, Lapu-lapu City. Upon scrutinizing the documents involving the properties, petitioner discovered that the documents covered rights over government properties. Realizing he had been deceived, petitioner advised Metrobank to stop payment of his checks. However, only the payment of Check No. C-MA- 142119406-CA was ordered stopped. The other two checks were already encashed by the payees. Meanwhile, Check No. C-MA- 142119406-CA (a cross-check) was negotiated and indorsed to respondents by petitioner in exchange for cash in the sum of P948,000.00, which respondents borrowed from Metrobank and charged against their credit line. Drawee bank, Metrobank, Cebu-Mabolo Branch, which is also their depositary bank, answered that the checks were suffiiently funded. However, the same was dishonored by the drawee bank when they tried to deposit it for reason “PAYMENT STOPPED.” Respondents filed a collection suit against petitioner and Lobitana before the trial court. The trial court ruled in favor of respondents and declared them due course holders of the subject check, since there was no privity between respondents and defendants. CA affirmed but modified the trial court’s decision by deleting the award of interest, moral damages, attorney’s fees and litigation expenses. The Court of Appeals opined that petitioner “was only exercising (although incorrectly), what he perceived to be his right to stop the payment of the check which he rediscounted.” The Court of Appeals ruled that petitioner acted in good faith in ordering the stoppage of payment of the subject check and thus, he must not be made liable for those amounts. Issue: WON The respondents were holders in due course? Held: PETITION GRANTED. Section 52 of the Negotiable Instruments Law defines a holder in due course, thus: A holder in due course is a holder who has taken the instrument under the following conditions:

(a)

That it is complete and regular upon its face;

(b)

That he became the holder of it before it was overdue, and without notice that it has

been previously dishonored, if such was the fact; (c) (d)

That he took it in good faith and for value; That at the time it was negotiated to him, he had no notice of any infirmity in the

instrument or defect in the title of the person negotiating it. In the case of a crossed check, as in this case, the following principles must additionally be considered: A crossed check (a) may not be encashed but only deposited in the bank; (b) may be negotiated only once — to one who has an account with a bank; and (c) warns the holder that it has been issued for a definite purpose so that the holder thereof must inquire if he has received the check pursuant to that purpose; otherwise, he is not a holder in due course. Based on the foregoing, respondents had the duty to ascertain the indorser’s, in this case Lobitana’s, title to the check or the nature of her possession. This respondents failed to do. Respondents’ verification from Metrobank on the funding of the check does not amount to determination of Lobitana’s title to the check. Failing in this respect, respondents are guilty of gross negligence amounting to legal absence of good faith,[15] contrary to Section 52(c) of the Negotiable Instruments Law. Hence, respondents are not deemed holders in due course of the subject check. However, the fact that respondents are not holders in due course does not automatically mean that they cannot recover on the check. The Negotiable Instruments Law does not provide that a holder who is not a holder in due course may not in any case recover on the instrument. The only disadvantage of a holder who is not in due course is that the negotiable instrument is subject to defenses as if it were non-negotiable. Among such defenses is the absence or failure of consideration,[ which petitioner sufficiently established in this case. Petitioner issued the subject check supposedly for a loan in favor of Consing’s group, who turned out to be a syndicate defrauding gullible individuals. Since there is in fact no valid loan to speak of, there is no consideration for the issuance of the check. Consequently, petitioner cannot be obliged to pay the face value of the check.

Metropolitan Bank and Trust Company, etc. vs. BA Finance Corporation

Facts: Lamberto Bitanga (Bitanga) obtained from respondent BA Finance Corporation (BA Finance) a P329,280 loan to secure which, he mortgaged his car to respondent BA Finance. Bitanga thus had the mortgaged car insured by respondent Malayan Insurance Co., Inc. (Malayan Insurance). The car was stolen. On Bitanga’s claim, Malayan Insurance issued a check payable to the order of “B.A. Finance Corporationand Lamberto Bitanga” for P224,500, drawn against China Banking Corporation (China Bank). The check was crossed with the notation “For Deposit Payees’ Account Only. Without the indorsement or authority of his copayee BA Finance, Bitanga deposited the check to his account with the Asianbank Corporation (Asianbank), now merged with herein petitioner Metropolitan Bank and Trust Company (Metrobank). Bitanga subsequently withdrew the entire proceeds of the check. In the meantime, Bitanga’s loan became past due, but despite demands, he failed to settle it. BA Finance eventually learned of the loss of the car and of Malayan Insurance’s issuance of a crossed check payable to it and Bitanga, and of Bitanga’s depositing it in his account at Asianbank and withdrawing the entire proceeds thereof. BA Finance thereupon demanded the payment of the value of the check from Asianbank but to no avail, prompting it to file a complaint before the Regional Trial Court (RTC) of Makati for sum of money and damages against Asianbank and Bitanga,[8]alleging that, inter alia, it is entitled to the entire proceeds of the check. The trial court, holding that Asianbank was negligent in allowing Bitanga to deposit the check to his account and to withdraw the proceeds thereof, without his co-payee BA Finance having either indorsed it or authorized him to indorse it in its behalf,[16] found Asianbank and Bitanga jointly and severally liable to BA Finance following Section 41 of the Negotiable Instruments Law andAssociated Bank v. Court of Appeals. Issue: Is petitioner liable for the full amount of the check? Held :Petitioner, at all events, argue that its liability to BA Finance should only be one-half of the amount covered by the check as there is no indication in the check that Bitanga and BA Finance are solidary creditors to thus make them presumptively joint creditors. Argument is flaweed. The provisions of the Negotiable Instruments Law and underlying jurisprudential teachings on the black-letter law provide definitive justification for petitioner’s full liability on the value of the check. To be sure, a collecting bank, Asianbank in this case, where a check is deposited and which indorses the check upon presentment with the drawee bank, is an indorser.[31] This is because

in indorsing a check to the drawee bank, a collecting bank stamps the back of the check with the phrase “all prior endorsements and/or lack of endorsement guaranteed”[32] and, for all intents and purposes, treats the check as a negotiable instrument, hence, assumes the warranty of an indorser.[33] Without Asianbank’s warranty, the drawee bank (China Bank in this case) would not have paid the value of the subject check. Petitioner, as the collecting bank or last indorser, generally suffers the loss because it has the duty to ascertain the genuineness of all prior indorsements considering that the act of presenting the check for payment to the drawee is an assertion that the party making the presentment has done its duty to ascertain the genuineness of prior indorsements.[34]

Accordingly, one who credits the proceeds of a check to the account of the indorsing payee is liable in conversion to the non-indorsing payee for the entire amount of the check. To reiterate, petitioner’s liability is based not on contract or quasi-contract but on quasi-delict since there is no pre-existing contractual relation between the parties.[40]

Article 2231 of the Civil Code,

which provides that in quasi-delict, exemplary damages may be granted if the defendant acted with gross negligence, thus applies. For “gross negligence” implies a want or absence of or failure to exercise even slight care or diligence, or the entire absence of care,[41] evincing a thoughtless disregard of consequences without exerting any effort to avoid them.

Bank of America, NT and SA Vs. Associated Citizens Bank

Facts: BA-Finance Corporation (BA-Finance) entered into a transaction with Miller Offset Press, Inc. (Miller), through the latter’s authorized representatives, i.e., Uy Kiat Chung, Ching Uy Seng, and Uy Chung Guan Seng. BA-Finance granted Miller a credit line facility through which the latter could assign or discount its trade receivables with the former. Uy Kiat Chung, Ching Uy Seng, and Uy Chung Guan Seng executed a Continuing Suretyship Agreement with BAFinance whereby they jointly and severally guaranteed the full and prompt payment of any and all indebtedness which Miller may incur with BA-Finance.

Miller discounted and assigned several trade receivables to BA-Finance by executing Deeds of Assignment in favor of the latter. In consideration of the assignment, BA-Finance issued four checks payable to the "Order of Miller Offset Press, Inc." with the notation "For Payee’s Account Only." These checks were drawn against Bank of America.

The four checks were deposited. Associated Bank stamped the checks with the notation "all prior endorsements and/or lack of endorsements guaranteed," and sent them through clearing. Later, the drawee bank, Bank of America, honored the checks and paid the proceeds to Associated Bank as the collecting bank. Miller failed to deliver to BA-Finance the proceeds of the assigned trade receivables. Consequently, BA-Finance filed a Complaint against Miller for collection. TC rendered judgment against Bank of America. CA affirmed.

Issue: Who is liable to pay the 4 checks?

Held: Petition unmeritorious. The bank on which a check is drawn, known as the drawee bank, is under strict liability, based on the contract between the bank and its customer (drawer), to pay the check only to the payee or the payee’s order. The drawer’s instructions are reflected on the face and by the terms of the check. When the drawee bank pays a person other than the payee named on the check, it does not comply with the terms of the check and violates its duty to charge the drawer’s account only for properly payable items. Thus, we ruled in Philippine National Bank v. Rodriguez10 that a drawee should charge to the drawer’s accounts only the payables authorized by the latter; otherwise, the drawee will be violating the instructions of the drawer and shall be liable for the amount charged to the drawer’s account.

Among the different types of checks issued by a drawer is the crossed check. The Negotiable Instruments Law is silent with respect to crossed checks, although the Code of Commerce11 makes reference to such instruments. This Court has taken judicial cognizance of the practice that a check with two parallel lines in the upper left hand corner means that it could only be deposited and could not be converted into cash. Thus, the effect of crossing a check relates to the mode of payment, meaning that the drawer had intended the check for deposit only by the

rightful person, i.e., the payee named therein.14 The crossing may be "special" wherein between the two parallel lines is written the name of a bank or a business institution, in which case the drawee should pay only with the intervention of that bank or company, or "general" wherein between two parallel diagonal lines are written the words "and Co." or none at all, in which case the drawee should not encash the same but merely accept the same for deposit. In Bataan Cigar v. Court of Appeals, we enumerated the effects of crossing a check as follows: (a) the check may not be encashed but only deposited in the bank; (b) the check may be negotiated only once – to one who has an account with a bank; and (c) the act of crossing the check serves as a warning to the holder that the check has been issued for a definite purpose so that he must inquire if he has received the check pursuant to that purpose; otherwise, he is not a holder in due course.

In this case, the four checks were drawn by BA-Finance and made payable to the "Order of Miller Offset Press, Inc." The checks were also crossed and issued "For Payee’s Account Only." Clearly, the drawer intended the check for deposit only by Miller Offset Press, Inc. in the latter’s bank account. Thus, when a person other than Miller, i.e., Ching Uy Seng, a.k.a. Robert Ching, presented and deposited the checks in his own personal account (Ching Uy Seng’s joint account with Uy Chung Guan Seng), and the drawee bank, Bank of America, paid the value of the checks and charged BA-Finance’s account therefor, the drawee Bank of America is deemed to have violated the instructions of the drawer, and therefore, is liable for the amount charged to the drawer’s account. GD EXPRESS WORLDWIDE v. HON. COURT OF APPEALS Facts: Petitioner GD Express Worldwide N.V. (GD Express) is a corporation duly organized and existing under the laws of the Netherlands. It entered into a joint venture agreement with PADC for the establishment of a domestic corporation as their corporate vehicle to operate as an international air freight carrier. Pursuant to the joint venture agreements, PADC and TNT registered with the SEC a corporation to be known as Air Philippines Corporation (APC). APC amended its articles of incorporation to change its corporate name to Pacific East Asia Cargo Airlines, Inc. (PEAC). On 02 April 1993, TNT transferred all its shares in PEAC to petitioner GD Express.[4] PEAC immediately commenced operations. Sometime in 1994, the Office of the President mandated the Committee on Privatization to require the Asset Privatization Trust (APT) to dispose of PADC’s 80% share in PEAC. Thus, petitioner GD Express and PADC

executed the Terms of Reference that would govern the disposition of PADC’s equity comprising 12,800 subscribed shares of stock in PEAC. In the APT issued the Asset Specific Bidding Rules (ASBR) incorporating the Terms of Reference for the sale of PADC’s shares of stock in PEAC. The ASBR required prospective bidders, among others, to comply with the obligations and undertakings/warranties enumerated therein. Respondent Filchart, also a domestic corporation, emerged as the highest bidder of the 12,800 shares of stock owned by PADC in PEAC. Alleging that respondent Filchart was bent on reneging on its obligations and warranties under the ASBR and Terms of Reference, petitioner instituted Civil Case No. 961675 for specific performance before the Regional Trial Court (RTC) of Makati to compel PADC and APT to faithfully comply with the joint venture agreements, the ASBR and the Terms of Reference, with a prayer for the preservation of the status quo ante litem. During the pendency of Civil Case Filchart executed the corresponding deed of absolute sale, by virtue of which PADC sold to respondent Filchart its shares of stock in PEAC in consideration of the bid price of P110,000,000.00. RTC issued a temporary restraining order against respondent Filchart. Filchart filed before the SEC a petition, docketed as SEC Case No. 08-97-5746, praying for the appointment of a management committee to take over the business operations of PEAC pending litigation and for judgment declaring, among others, the nullity of certain provisions in the joint venture agreement between PADC and petitioner GD Express, particularly those requiring the consent of petitioner GD Express in the sale of PADC’s shareholdings in PEAC. Named respondents were herein petitioners GD Express and Amihan. petitioners filed a motion to dismiss the petition in the SEC Case on the grounds that its filing constituted a willful and deliberate act of forum shopping and that respondent Filchart had no capacity to sue and cause of action to ask for the appointment of a management committee pending the determination of its status as a stockholder. SEC Denied Petition for dismiss. Petitioners elevated the matter to SEC enbanc. SEC en banc affirmed. CA dismissed petitioners' Rule 43 for lack of merit. Issue: Whether the SEC erred in assuming jurisdiction over respondent Filchart’s petition in SEC Case during the pendency of Civil Case. Held: It should be noted that the SCCs are still considered courts of general jurisdiction. Section 5.2 of R.A. No. 8799[28] directs merely the Supreme Court’s designation of RTC branches that shall exercise jurisdiction over intra-corporate disputes. Nothing in the language of the law suggests the diminution of jurisdiction of those RTCs to be designated as SCCs. The assignment of intra-corporate disputes to SCCs is only for the purpose of streamlining the workload of the RTCs so that certain branches thereof like the SCCs can focus only on a

particular subject matter. The RTC exercising jurisdiction over an intra-corporate dispute can be likened to an RTC exercising its probate jurisdiction or sitting as a special agrarian court. The designation of the SCCs as such has not in any way limited their jurisdiction to hear and decide cases of all nature, whether civil, criminal or special proceedings. There is no jurisdictional infirmity for either court (the RTC hearing Civil Case and the SCC assigned to hear SEC Case), the only question that remains is whether Civil Case and SEC Case, now transferred to the proper SCC, may proceed concurrently or should be consolidated or whether SEC Case should be suspended to await the outcome of Civil Case No. 96-17-675. The test to determine whether the suspension of the proceedings in the SECOND CASE is proper is whether the issues raised by the pleadings in the FIRST CASE are so related with the issues raised in the SECOND CASE, such that the resolution of the issues in the FIRST CASE would determine the issues in the SECOND CASE. The power to stay proceedings is incidental to the power inherent in every court to control the disposition of the cases on its dockets, considering its time and effort, that of counsel and the litigants. But if proceedings must be stayed, it must be done in order to avoid multiplicity of suits and prevent vexatious litigations, conflicting judgments, confusion between litigants and courts. It bears stressing that whether or not the RTC, in this case the SCC, would suspend the proceedings in the SECOND CASE is submitted to its sound discretion. Thus, the SCC to which SEC Case No. 08-97-5746 was transferred has sufficient discretion to determine whether under the circumstances of the case, it should await the outcome of Civil Case No. 96-17-675. Did the respondent commit forum shopping? The elements of forum shopping are: (a) identity of parties, or at least such parties as represent the same interests in both action; (b) identity of rights asserted and reliefs prayed for, the reliefs being founded on the same facts; and (c) the identity with respect to the two preceding particulars in the two cases is such that any judgment rendered in the pending cases, regardless of which party is successful, amount to res judicata in the other case. To begin with, respondent Filchart did not file multiple suits but only a single action which is SEC Case. As already explained above, the outcome in Civil Case will only determine respondent Filchart’s capacity to institute the intra-corporate suit. Thus, the judgment in the said civil case cannot amount to res judicata in SEC Case. Strictly speaking, the latter can still proceed independently of Civil Case, but the SCC may exercise its sound discretion to suspend the intra-corporate proceeding if it believes that the outcome of the civil case will affect the causes of action raised in SEC Case.