September 2011 Philippine Supreme Court Decisions on Commercial Law

Here are selected September 2011 rulings of the Supreme Court of the Philippines on commercial law:

Banks; degree of diligence required.  The General Banking Law of 2000 requires of banks the highest standards of integrity and performance. The banking business is impressed with public interest. Of paramount importance is the trust and confidence of the public in general in the banking industry. Consequently, the diligence required of banks is more than that of a Roman pater familias or a good father of a family. The highest degree of diligence is expected. Philippine Commercial Bank vs. Antonio B. Balmaceda and Rolando N. Ramos, G.R. No. 158143, September 21, 2011.

Banks; unilateral freezing of bank account.  We also find that PCIB acted illegally in freezing and debiting Ramos’ bank account. In BPI Family Bank v. Franco, we cautioned against the unilateral freezing of bank accounts by banks, noting that:

More importantly, [BPI Family Bank] does not have a unilateral right to freeze the accounts of Franco based on its mere suspicion that the funds therein were proceeds of the multi-million peso scam Franco was allegedly involved in. To grant [BPI Family Bank], or any bank for that matter, the right to take whatever action it pleases on deposits which it supposes are derived from shady transactions, would open the floodgates of public distrust in the banking industry.

We see no legal merit in PCIB’s claim that legal compensation took place between it and Ramos, thereby warranting the automatic deduction from Ramos’ bank account. For legal compensation to take place, two persons, in their own right, must first be creditors and debtors of each other. While PCIB, as the depositary bank, is Ramos’ debtor in the amount of his deposits, Ramos is not PCIB’s debtor under the evidence the PCIB adduced. PCIB thus had no basis, in fact or in law, to automatically debit from Ramos’ bank account.   Philippine Commercial Bank vs. Antonio B. Balmaceda and Rolando N. Ramos, G.R. No. 158143, September 21, 2011.

Checks; crossed checks.  A crossed check is one where two parallel lines are drawn across its face or across its corner. Based on jurisprudence, the crossing of a check has the following effects: (a) the check may not be encashed but only deposited in the bank; (b) the check may be negotiated only once — to the one who has an account with the 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 and he must inquire if he received the check pursuant to this purpose; otherwise, he is not a holder in due course. In other words, the crossing of a check is a warning that the check should be deposited only in the account of the payee. When a check is crossed, it is the duty of the collecting bank to ascertain that the check is only deposited to the payee’s account. In complete disregard of this duty, PCIB’s systems allowed Balmaceda to encash 26 Manager’s checks which were all crossed checks, or checks payable to the “payee’s account only.”  Philippine Commercial Bank vs. Antonio B. Balmaceda and Rolando N. Ramos, G.R. No. 158143, September 21, 2011.

Payment; foreign currency.   A stipulation of payment in dollars is not prohibited by any prevailing law or jurisprudence at the time the loans were taken. In this regard, Article 1249 of the Civil Code provides:

Art. 1249.  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.

Although the Civil Code took effect on August 30, 1950, jurisprudence had upheld the continued effectivity of Republic Act No. 529, which took effect earlier on June 16, 1950.  Pursuant to Section 1 of Republic Act No. 529, any agreement to pay an obligation in a currency other than the Philippine currency is void; the most that could be demanded is to pay said obligation in Philippine currency to be measured in the prevailing rate of exchange at the time the obligation was incurred.  On June 19, 1964, Republic Act No. 4100 took effect, modifying Republic Act No. 529 by providing for several exceptions to the nullity of agreements to pay in foreign currency.

On April 13, 1993, Central Bank Circular No. 1389 was issued, lifting foreign exchange restrictions and liberalizing trade in foreign currency.  In cases of foreign borrowings and foreign currency loans, however, prior Bangko Sentral approval was required.  On July 5, 1996, Republic Act No. 8183 took effect, expressly repealing Republic Act No. 529 in Section 2 thereof.    The same statute also explicitly provided that parties may agree that the obligation or transaction shall be settled in a currency other than Philippine currency at the time of payment.

Although the Credit Line Agreement between the spouses Tiu and Union Bank was entered into on November 21, 1995, when the agreement to pay in foreign currency was still considered void under Republic Act No. 529, the actual loans, as shown in the promissory notes, were taken out from September 22, 1997 to March 26, 1998, during which time Republic Act No. 8183 was already in effect.  Union Bank of the Philippines vs. Spouses Rodolfo T. Tiu and Victoria N. Tiu, G.R. Nos. 173090-91. September 7, 2011.

(Hector thanks Rachel T. Uy for her assistance to Lexoterica.)