December 2009 Philippine Supreme Court Decisions on Commercial Law

Here are selected December 2009 rulings of the Supreme Court of the Philippines on commercial law:

Check; indorsement by co-payee.  Section 41 of the Negotiable Instruments Law provides: “Where an instrument is payable to the order of two or more payees or indorsees who are not partners, all must indorse unless the one indorsing has authority to indorse for the others.”

Bitanga alone endorsed the crossed check, and petitioner allowed the deposit and release of the proceeds thereof, despite the absence of authority of Bitanga’s co-payee BA Finance to endorse it on its behalf.

Petitioner’s argument that since there was neither forgery, nor unauthorized indorsement because Bitanga was a co-payee in the subject check, the dictum in Associated Bank v. CA does not apply in the present case fails.

The payment of an instrument over a missing indorsement is the equivalent of payment on a forged indorsement or an unauthorized indorsement in itself in the case of joint payees.

Petitioner, through its employee, was negligent when it allowed the deposit of the crossed check, despite the lone endorsement of Bitanga, ostensibly ignoring the fact that the check did not carry the indorsement of BA Finance.  Metropolitan Bank and Trust Company, etc. vs. BA Finance Corporation and Malayan Insurance Co, Inc.,  G.R. No. 179952, December 4, 2009.

Check; liability of collecting bank. 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. 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” and, for all intents and purposes, treats the check as a negotiable instrument, hence, assumes the warranty of an indorser. 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.

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.

Granting petitioner’s appeal for partial liability would run counter to the existing principles on the liabilities of parties on negotiable instruments, particularly on Section 68 of the Negotiable Instruments Law which instructs that joint payees who indorse are deemed to indorse jointly and severally. When the maker dishonors the instrument, the holder thereof can turn to those secondarily liable — the indorser — for recovery. Since the law explicitly mandates a solidary liability on the part of the joint payees who indorse the instrument, the holder thereof (assuming the check was further negotiated) can turn to either Bitanga or BA Finance for full recompense. Metropolitan Bank and Trust Company, etc. vs. BA Finance Corporation and Malayan Insurance Co, Inc., G.R. No. 179952, December 4, 2009.

Corporation;  derivative suit. It is well settled in this jurisdiction that where corporate directors are guilty of a breach of trust — not of mere error of judgment or abuse of discretion — and intracorporate remedy is futile or useless, a stockholder may institute a suit in behalf of himself and other stockholders and for the benefit of the corporation, to bring about a redress of the wrong inflicted directly upon the corporation and indirectly upon the stockholders.  Santiago Cua, Jr., et al. vs. Miguel Ocampo Tan, et al./Santiago Cua, Sr., et al. vs. Court of Appeals, et al,  G.R. No. 181455-56/G.R. No. 182008, December 4, 2009.

Corporation;  officer.  The issue revolves mainly on whether petitioner was an employee or a corporate officer of Slimmers World. Section 25 of the Corporation Code enumerates corporate officers as the president, secretary, treasurer and such other officers as may be provided for in the by-laws. In Tabang v. NLRC, the Supreme Court held that an “office” is created by the charter of the corporation and the officer is elected by the directors or stockholders.  On the other hand, an “employee” usually occupies no office and generally is employed not by action of the directors or stockholders but by the managing officer of the corporation who also determines the compensation to be paid to such employee.   Leslie Okol vs. Slimmers World International, et al., G.R. No. 160146, December 11, 2009.

Corporation;  liability of officers.  A corporation is vested by law with a personality separate and distinct from the people comprising it. Ownership by a single or small group of stockholders of nearly all of the capital stock of the corporation is not by itself a sufficient ground to disregard the separate corporate personality. Thus, obligations incurred by corporate officers, acting as corporate agents, are direct accountabilities of the corporation they represent.

In this case, none of these exceptional circumstances is present. In its decision, the trial court failed to provide a clear ground why Eugene Lim was held solidarily liable with Shrimp Specialists. The trial court merely stated that Eugene Lim signed on behalf of the Shrimp Specialists as President without explaining the need to disregard the separate corporate personality. The CA correctly ruled that the evidence to hold Eugene Lim solidarily liable should be more than just signing on behalf of the corporation because artificial entities can only act through natural persons.  Thus, the CA was correct in dismissing the case against Eugene Lim.  Shrimp Specialist, Inc., vs. Fuji-Triumph Agri-Industrial Corporation/Fuji-Trimph Agri-Industrial Corporation vs. Shrimp Specialist, Inc. et al.,  G.R. No. 168756/G.R. No. 171476, December 7, 2009.