Metrobank v. Chiok
REITERATIONFacts
The Antecedents: Wilfred N. Chiok, engaged in dollar trading, entered into transactions with Gonzalo B. Nuguid involving millions of pesos. Chiok would pay Nuguid in cash or manager's checks, and Nuguid would deliver US dollars later. Chiok maintained accounts with Metropolitan Bank and Trust Company (Metrobank) and Global Business Bank, Inc. (Global Bank), and had a Bills Purchase Line Agreement (BPLA) with Global Bank (then Asian Banking Corporation). On July 5, 1995, Chiok purchased three manager's and cashier's checks totaling P26,068,350.00 from Global Bank and Metrobank, intended for Nuguid. These checks were deposited into Nuguid's account with Far East Bank & Trust Company (FEBTC), the predecessor of Bank of the Philippine Islands (BPI). Nuguid failed to deliver the agreed-upon US dollars, prompting Chiok to request a stop payment on the checks. Procedural History: On July 6, 1995, Chiok filed a complaint for damages with a prayer for a restraining order and preliminary injunction against the Nuguid spouses and the depositary banks, Asian Bank and Metrobank. The Regional Trial Court (RTC) issued a Temporary Restraining Order (TRO) on the same day. Subsequently, the RTC issued a writ of preliminary prohibitory injunction on July 25, 1995, after Chiok posted a bond. FEBTC intervened in the case. After trial, the RTC rendered a decision on August 29, 2002, declaring the injunction permanent and ordering Global Bank and Metrobank to pay Chiok. The RTC also dismissed BPI's complaint-in-intervention. Global Bank, Metrobank, BPI, and the Nuguid spouses appealed. The Court of Appeals (CA) affirmed the RTC decision with modifications on May 5, 2006, and denied motions for reconsideration on November 6, 2006. These consolidated petitions for review on certiorari followed. The Petition: Metrobank, BPI, and Global Bank filed separate petitions for review on certiorari, assailing the Court of Appeals' decision. The petitions raise issues concerning whether a purchaser of a manager's or cashier's check can stop payment through a court order due to the payee's alleged breach of contract, whether the banks had knowledge of circumstances defeating the payee's title, and the propriety of the orders for payment and cancellation of checks. Specifically, Metrobank questions the CA's ruling on the possibility of stopping payment on manager's/cashier's checks due to alleged breach of contract and the basis for holding Metrobank liable. BPI questions the CA's deviation from commercial law principles regarding manager's/cashier's checks and the justification for a stop payment order in this case. Global Bank challenges the CA's ruling on its right of recourse against Chiok and the imposition of interest.
Issue(s)
Whether or not the payment of manager's and cashier's checks are subject to the condition that the payee thereof should comply with his obligations to the purchaser of the checks. Whether or not the purchaser of manager's and cashier's checks has the right to have the checks cancelled by filing an action for rescission of its contract with the payee. Whether or not the peculiar circumstances of this case justify the deviation from the general principles on causes and effects of manager's and cashier's checks. Whether or not BPI has the right to the proceeds of the manager's checks from Global Bank.
Ruling
The Supreme Court resolved to DENY the Joint Manifestation and Motion filed by Metrobank, Global Bank, and Chiok. The petitions in G.R. No. 172652 and G.R. No. 175302 are GRANTED, reversing and setting aside the Decision of the Court of Appeals and ordering the DENIAL of Chiok's Amended Complaint for lack of merit. The Writ of Preliminary Prohibitory Injunction enjoining Asian Banking Corporation (now Global Business Bank, Inc.) and Metropolitan Bank & Trust Company from honoring the subject checks is LIFTED and SET ASIDE. Global Business Bank, Inc. is ORDERED TO PAY the Bank of the Philippine Islands the amount of ₱18,455,350.00, with interest. The petition in G.R. No. 175394 is rendered MOOT. The liabilities of spouses Gonzalo B. Nuguid and Marinella O. Nuguid under the Court of Appeals Decision remain VALID and SUBSISTING.
Ratio Decidendi
On the issue of whether payment of manager's and cashier's checks are subject to the condition that the payee thereof should comply with his obligations to the purchaser of the checks: The Court reiterated that manager's checks and cashier's checks are generally considered as good as cash and are primary obligations of the issuing bank, accepted in advance by their mere issuance. They are not subject to countermand for reasons such as drawn against a closed account, insufficient funds, or failure of consideration of the payee to the purchaser, as these are not conditions appearing on the face of the check. Long-standing banking practices and jurisprudence, such as in New Pacific Timber & Supply Company, Inc. v. Hon. Seneris and Tan v. Court of Appeals, firmly establish their unconditional nature. The Court clarified that while these checks are subject to clearing, this process is to ensure they are not altered or counterfeited, not to allow countermanding for reasons of alleged breach of contract between the purchaser and payee. The Court found that the RTC and CA erred in allowing stop payment orders based on the payee's alleged breach of contract, as this undermines the integrity and honor of these instruments. On the issue of whether the purchaser of manager's and cashier's checks has the right to have the checks cancelled by filing an action for rescission of its contract with the payee: The Court disagreed with the Court of Appeals' ruling that Chiok's action was one for rescission under Article 1191 of the Civil Code, which could lead to the cancellation of the checks. The Court emphasized that the principle of relativity of contracts (Article 1311) dictates that contracts only bind the parties thereto. Metrobank and Global Bank were not parties to the foreign currency purchase contract between Chiok and Nuguid, and thus could not be prejudiced by Nuguid's failure to comply. The Court stated that Chiok's recourse should have been against Nuguid for damages and garnishment of Nuguid's accounts, not against the issuing banks to enjoin payment on their primary obligations. The Court found that Chiok's voluntary deposit of the checks into Nuguid's account, driven by trust, made him bear the loss as between two innocent parties. The Court also found the reliance on Mesina v. Intermediate Appellate Court by the CA to be inappropriate due to factual differences. On the issue of whether the peculiar circumstances of this case justify the deviation from the general principles on causes and effects of manager's and cashier's checks: The Supreme Court found no comparable peculiar circumstances in the present case to justify a deviation from established banking principles, unlike in the Mesina case where the check was stolen while in the bank's possession. In this case, Chiok personally deposited the checks into Nuguid's account. The only knowledge attributed to the drawee banks was Chiok's request for a stop payment order, which Asian Bank (Global Bank) heeded by obeying the TRO. There was no mention of Metrobank being notified of the alleged failure of consideration. The Court concluded that the mere allegation of breach of contract by the payee should not be a sufficient cause to nullify these checks and erode their integrity as cash equivalents. Therefore, Chiok's complaint for withdrawal of the proceeds of the checks was denied, and the injunction was lifted. On the issue of whether BPI has the right to the proceeds of the manager's checks from Global Bank: The Court found that while BPI was not a holder in due course because the checks were not indorsed to it, it acquired the rights of an equitable assignee for value under Section 49 of the Negotiable Instruments Law. The Court noted that Nuguid admitted in his pleadings that FEBTC (now BPI) had paid him the value of the checks, which is a judicial admission that does not require further proof. As an equitable assignee, BPI's claim against Global Bank, the primary obligor, was upheld. Global Bank was ordered to pay BPI the aggregate face value of the manager's checks, with interest based on the rates it actually paid its depositors from July 7, 1995, until finality of the decision, and thereafter at the legal rate. The Court clarified that Chiok's recourse for the amounts of the checks is against Nuguid, who was not a party to the consolidated cases and whose appeal had lapsed.
Main Doctrine
Manager's checks and cashier's checks, while generally considered as good as cash and primary obligations of the issuing bank, are not absolutely immune from stop payment orders or cancellation when there is a clear breach of reciprocal obligations between the purchaser and the payee, provided that the rights of third parties are not prejudiced. However, the general rule that such checks cannot be countermanded based on a payee's failure to comply with obligations to the purchaser is upheld, and deviations are only allowed under exceptionally peculiar circumstances, not merely on allegations of breach of contract.