June 2012 Philippine Supreme Court Decisions on Commercial Law

Here are select June 2012 rulings of the Supreme Court of the Philippines on commercial law:

Banks; diligence required.  Republic Act No. 8971, or the General Banking Law of 2000, recognizes the vital role of banks in providing an environment conducive to the sustained development of the national economy and the fiduciary nature of banking; thus, the law requires banks to have high standards of integrity and performance. The fiduciary nature of banking requires banks to assume a degree of diligence higher than that of a good father of a family. In the case at bar, petitioner itself was negligent in the conduct of its business when it extended unsecured loans to the debtors. Worse, it was in serious breach of its duty as the trustee of the MTI. It was not able to protect the interests of the parties and was even instrumental in violating the terms of the MTI, to the detriment of the parties thereto. Thus, petitioner has only itself to blame for being left with insufficient recourse against petitioner under the assailed MTI. Metropolitan Bank and Trust Company vs. Centro Development Corp., et al., G.R. No. 180974, June 13, 2012.

Corporation; corporate approval for appointment of trustee.  Reading carefully the Secretary’s Certificate, it is clear that the main purpose of the directors’ Resolution was to appoint petitioner as the new trustee of the previously executed and amended MTI. Going through the original and the revised MTI, we find no substantial amendments to the provisions of the contract. We agree with petitioner that the act of appointing a new trustee of the MTI was a regular business transaction. The appointment necessitated only a decision of at least a majority of the directors present at the meeting in which there was a quorum, pursuant to Section 25 of the Corporation Code.  Metropolitan Bank and Trust Company vs. Centro Development Corp., et al., G.R. No. 180974, June 13, 2012.

August 2010 Philippine Supreme Court Decisions on Commercial Law

Here are selected August 2010 rulings of the Supreme Court of the Philippines on commercial law:

Corporation; liability of directors and officers.  Elementary is the rule that a corporation is invested by law with a personality separate and distinct from those of the persons composing it and from that of any other legal entity to which it may be related. “Mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not of itself sufficient ground for disregarding the separate corporate personality.”

In labor cases, corporate directors and officers may be held solidarily liable with the corporation for the termination of employment only if done with malice or in bad faith. Bad faith does not connote bad judgment or negligence; it imports a dishonest purpose or some moral obliquity and conscious doing of wrong; it means breach of a known duty through some motive or interest or ill will; it partakes of the nature of fraud.  Wensha Spa Center, inc. and/or Xu Zhi Jie vs. Loreta T. Yung, G.R. No. 185122, August 16, 2010.

Crossed check;  effect. A check is a bill of exchange drawn on a bank payable on demand. There are different kinds of checks. In this case, crossed checks are the subject of the controversy.  A crossed check is one where two parallel lines are drawn across its face or across the corner thereof. It may be crossed generally or specially.

A check is crossed specially when the name of a particular banker or a company is written between the parallel lines drawn. It is crossed generally when only the words “and company” are written or nothing is written at all between the parallel lines, as in this case. It may be issued so that presentment can be made only by a bank.

In order to preserve the credit worthiness of checks, jurisprudence has pronounced that 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 one who has an account with a bank; and (c) the act of crossing the check serves as 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.

The 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  not  converted  into cash.  The effect of crossing a check, thus, 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. The crossing of a check  is a warning that the check should be deposited only in the account of the payee. Thus, it is the duty of the collecting bank to ascertain that the check be deposited to the payee’s account only.   Vicente Go vs. Metropolitan Bank and Trust Co., G.R. No. 168842, August 11, 2010.

April 2010 Philippine Supreme Court Decisions on Commercial Law

Here are selected April 2010 rulings of the Supreme Court of the Philippines on commercial law:

Negotiable Instruments Law

Holder in due course;  crossed check. 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)  That he took it in good faith and for value;  (d)  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, contrary to Section 52(c) of the Negotiable Instruments Law.  Hence, respondents are not deemed holders in due course of the subject check.  Roberto Dino vs. Maria Luisa Judal-Loot, joined by her husband Vicente Loot, G.R. No. 170912, April 19, 2010.

Holder in due course; recourse if not holder in due course.  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.

Respondents can collect from the immediate indorser, in this case Lobitana.  Significantly, Lobitana did not appeal the trial court’s decision, finding her solidarily liable to pay, among others, the face value of the subject check.  Therefore, the trial court’s judgment has long become final and executory as to Lobitana.  Roberto Dino vs. Maria Luisa Judal-Loot, joined by her husband Vicente Loot, G.R. No. 170912, April 19, 2010.

May 2009 Decisions on Commercial, Tax and Labor Laws

Here are selected May 2009 decisions of the Supreme Court on commercial, tax and labor laws.

Commercial Law

Collecting bank; liability. A collecting bank where a check is deposited, and which endorses the check upon presentment with the drawee bank, is an endorser. Under Section 66 of the Negotiable Instruments Law, an endorser warrants “that the instrument is genuine and in all respects what it purports to be; that he has good title to it; that all prior parties had capacity to contract; and that the instrument is at the time of his endorsement valid and subsisting.” The Supreme Court has repeatedly held that in check transactions, the collecting bank or last endorser generally suffers the loss because it has the duty to ascertain the genuineness of all prior endorsements 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 the endorsements.

When Associated Bank stamped the back of the four checks with the phrase “all prior endorsements and/or lack of endorsement guaranteed,” that bank had for all intents and purposes treated the checks as negotiable instruments and, accordingly, assumed the warranty of an endorser. Being so, Associated Bank cannot deny liability on the checks.  Bank of America, NT and SA Vs. Associated Citizens Bank, et al./Associated Citizens Bank vs. BA Finance Corporation, et al., G.R. Nos. 141001/141018,  May 21, 2009.