Banco de Oro Unibank, Inc. v. Lao
REITERATIONFacts
1. The Antecedents: Respondent Engr. Selwyn S. Lao filed a complaint for collection of sum of money against Equitable Banking Corporation (now BDO Unibank, Inc.), Everlink Pacific Ventures, Inc., and Wu Hsieh. Lao alleged that he issued two crossed checks to Everlink for the purchase of sanitary wares. However, Everlink failed to deliver the goods. Lao later discovered that the checks were deposited into bank accounts belonging to Wu and a company named New Wave Plastic, represented by Willy Antiporda. Lao sought to hold BDO liable for allowing the encashment of the checks and Everlink and Wu liable for breach of their obligation. 2. Procedural History: The Regional Trial Court (RTC) initially absolved BDO but ordered Union Bank (formerly International Exchange Bank) to pay Lao P336,500.00 for one of the checks, plus damages and attorney's fees. The RTC found Union Bank negligent in allowing the deposit of a crossed check into an account not belonging to the payee. Upon appeal, the Court of Appeals (CA) modified the RTC ruling, ordering BDO to pay Lao P336,500.00 and Union Bank to reimburse BDO. The CA deleted the award for damages and attorney's fees. BDO filed a motion for partial reconsideration, arguing it was not a party to the appeal and the RTC decision absolving it had become final. 3. The Petition: BDO Unibank, Inc. filed a petition for review on certiorari with the Supreme Court, seeking to reverse the CA's decision ordering it to pay Lao. BDO argued that the CA erred in ruling on its liability as it was not a party to the appeal before the CA, and the RTC's decision absolving it had attained finality. BDO contended that Union Bank, as the collecting bank and last endorser, should bear the loss due to its negligence and its warranty on the check. The Supreme Court granted the petition, finding that the RTC decision absolving BDO had become final and that BDO could not be prejudiced by the CA's decision. The Court held that to simplify proceedings, Lao should recover directly from Union Bank, the negligent collecting bank.
Issue(s)
Whether the Court of Appeals erred in ordering BDO to pay Lao despite the finality of the RTC decision absolving BDO and BDO not being a party to the appeal. Whether Union Bank, as the collecting bank, is liable for the loss due to its negligence in handling a crossed check. Whether the sequence of recovery (drawee bank pays drawer, then collects from collecting bank) should be strictly followed, considering the finality of the RTC decision absolving BDO.
Ruling
The petition is GRANTED. The October 14, 2015 Decision and the September 5, 2016 Resolution of the Court of Appeals are REVERSED and SET ASIDE insofar as it ordered BDO Unibank, Inc. to pay Selwyn Lao the amount of Check No. 0127-242250. The rest of the decision is AFFIRMED. The amount shall earn interest at the rate of twelve percent (12%) per annum from August 24, 2001, to June 30, 2013, and six percent (6%) per annum from July 1, 2013, until full satisfaction.
Ratio Decidendi
On the issue of BDO's liability and the finality of the RTC decision: The Court agreed with BDO that the CA erred in ordering it to pay Lao. BDO was not impleaded as a party in Union Bank's appeal before the CA, and neither Lao nor Union Bank raised any issue regarding BDO's liability in their respective briefs. Consequently, the RTC decision absolving BDO from liability had attained finality as to BDO. To hold BDO liable would violate its constitutional right to due process, as it was not a party to the appeal and the issue of its liability was not raised. The Court reiterated the principle that a person cannot be prejudiced by a ruling in a case to which they were not a party. On Union Bank's liability as a collecting bank: The Court affirmed that Union Bank was negligent. It allowed the deposit of Check No. 0127-242250 into New Wave's account despite it not being the payee, Everlink. Furthermore, the check was a crossed check, which serves as a warning that it was issued for a definite purpose and should only be deposited by the rightful person. Union Bank's warranty, "all prior endorsements and/or lack of it guaranteed," turned out to be false, making it liable as an endorser under Section 66 of the Negotiable Instruments Law. The Court noted that Union Bank's negligence was the proximate cause of the loss. On the sequence of recovery and simplification of proceedings: While the general rule is that the drawee bank (BDO) pays the drawer (Lao) and then seeks reimbursement from the collecting bank (UnionBank), the Court found that this sequence was not applicable here due to the finality of the RTC decision absolving BDO. Citing Associated Bank v. Court of Appeals, the Court held that to simplify proceedings and avoid prejudice to a party not impleaded in the appeal (BDO), the aggrieved party (Lao) should be allowed to recover directly from the negligent collecting bank (UnionBank). This is because BDO, having been absolved with finality, could no longer be held liable to Lao, and Lao would have a right of action against BDO, which in turn would have a right of action against UnionBank. To avoid circuity of action and given BDO's final absolution, direct recovery from UnionBank was deemed appropriate.
Main Doctrine
While the general rule is that the drawee bank pays the drawer and may seek reimbursement from the collecting bank, in cases where the drawee bank was not impleaded in the appeal and its liability was already settled with finality by the RTC, the proceedings for recovery may be simplified, allowing the drawer to recover directly from the negligent collecting bank.