Title
Asia Banking Corp. vs. Ten Sen Guan y Sobrinos
Case
G.R. No. 19397
Decision Date
Feb 16, 1923
A foreign bank sued a partnership for payment of a draft tied to a fraudulent shipment of burlap instead of ordered batiste. The court ruled in favor of the defendants, citing fraud, lack of consideration, and the plaintiff's failure to prove holder-in-due-course status.
debt dispute
burden of proof
ownership of draft
A

Case Digest (G.R. No. 187836)

Facts:

  • Parties and nature of the action
  • Asia Banking Corporation (plaintiff and appellant) alleged that it was a foreign corporation duly licensed to do a banking business in the City of Manila.
  • The plaintiff alleged that the defendants, Ten Sen Guan y SobRinos and Yu Biao Sontua (defendants and appellees), were a duly registered partnership with its principal office in the City of Manila.
  • The plaintiff alleged that the defendants were indebted to it in the sum of $10,475.51, with interest and exchange, for and on account of a New York draft for that amount.
  • The plaintiff alleged that the draft was drawn by “Snow’s, Ltd.” on the defendants, payable ninety days after sight.
  • The plaintiff alleged that the draft was duly endorsed and that it was the owner and holder of the draft in due course of business.
  • The plaintiff alleged that demand was made for payment and was refused.
  • The plaintiff prayed for judgment for the amount of the draft, with interest at 8% per annum from May 12, 1920 to the date of payment, plus exchange at the rate of 14%, with costs.
  • The complaint was filed on August 4, 1921.
  • Defenses pleaded and factual assertions by the defendants
  • The defendants denied all material allegations except those admitted in the record.
  • The defendants specifically denied that they were indebted in the amount alleged or in any other sum.
  • The defendants also denied that the plaintiff was the holder of the draft in due course of business or for value.
  • As a further and separate defense, the defendants alleged the underlying transaction for which the draft was presented.
  • The defendants alleged that on February 25, 1920, they ordered from “Snow’s, Ltd.” ten cases of mercerized batiste valued at $10,266.98, to be shipped from New York freight prepaid to Manila for delivery to them.
  • The defendants alleged that the merchandise arrived in Manila about June 28, 1920.
  • The defendants alleged that a draft for the corresponding amount, drawn by “Snow’s, Ltd.” against them, was presented through the plaintiff as agent of “Snow’s, Ltd.” for acceptance.
  • The defendants alleged that the plaintiff refused delivery of the bill of lading and other documents relating to the merchandise until the defendants accepted the draft.
  • The defendants alleged that delivery was contingent upon acceptance of the draft.
  • The defendants alleged that, being assured by the plaintiff and believing the shipment described in the bill of lading was the “batiste” ordered, they accepted the draft and received delivery of the bill of lading.
  • The defendants alleged that they made entry of the goods at the Customs House in Manila and paid charges amounting to P628.07.
  • The defendants alleged that upon opening the cases, they found they contained “burlap” of little value, and not the “batiste” ordered and guaranteed to be contained.
  • The defendants alleged that they immediately declined to receive the goods, left the goods in the possession of the Customs authorities, notified the plaintiff, returned the bill of lading, and demanded cancellation of their acceptance of the draft.
  • The defendants alleged that the plaintiff accepted the return of the bill of lading and documents and agreed to cancel the defendants’ acceptance for the reason that it was without consideration.
  • The defendants prayed for dismissal of the complaint with costs.
  • Proceedings in the trial court and the issues raised on appeal
  • The lower court found for the defendants and judgment was entered against the plaintiff.
  • The plaintiff appealed and assigned errors including:
    • The lower court allegedly erred in failing to make findings of fact.
    • The lower court allegedly erred in dismissing the complaint.
    • The lower court allegedly erred in failing to render judgment for the plaintiff.
    • The lower court allegedly erred in admitting parol evidence tending to vary the terms of the written acceptance of the bill of exchange.
    • The lower court allegedly erred in admitting evidence concerning the alleged cancellation by the plaintiff of defendants’ acceptance and the alleged release of defendants.
    • The lower court allegedly erred in admitting certain exhibits.
    • The lower court allegedly erred in denying the plaintiff’s motion for a new trial.
  • Undisputed and found circumstances concerning the draft and acceptance
  • The draft in question was endorsed by “Snow’s, Ltd.”.
  • The endorsed draft, together with the invoice, bill of lading, and other shipping documents, were delivered to the plaintiff at its business in New York City.
  • The documents were sent to the plaintiff’s Manila branch and were presented to the defendants for acceptance.
  • Initially, the defendants refused to accept the draft because the merchandise had not arrived and they had no opportunity to inspect it.
  • The trial court found, in legal effect, that defendants accepted the draft because of representations by the local bank that the draft was drawn for the ten cases of mercerized batiste and that they would arrive as ordered.
  • The defendants eventually accepted the draft on June 28, 1920.
  • The draft was originally dated May 12, 1920 and was payable ninety days after sight.
  • The complaint was filed more than fourteen months after the acceptance and almost one year after it became due.
  • Plaintiff’s evidence regarding holder status and the evidentiary gaps found
  • The plaintiff alleged that it was a holder of the draft for value and in due course of business.
  • The Court found that the testimony offered by the plaintiff on this point was not clear or convincing and deserved little weight.
  • The Court held that, if the plaintiff was truly a good faith purchaser, it would have been easy to establish it through competent evidence showing the nature of the transaction in the plaintiff’s New York office, including:
    • When and how the plaintiff acquired the draft.
    • When and to whom the plaintiff paid the money.
    • How much it paid.
    • By whom it was actually paid.
    • An authentic account of the whole transaction.
  • The Court found that no such evidence appeared in the record.
  • The Court found that the plaintiff relied on the testimony of a local employee of the bank about alleged meanings of certain entries in bank records.
  • The Court ruled that, standing alone, such testimony was not sufficient or competent to show that the New York bank was the purchaser and holder for value.
  • The Court found the record indicated that, in truth and in fact, the plaintiff held the draft for collection rather than as a bona fide purchaser.
  • Trial court findings about conditional acceptance, admissibility of oral evidence, and release
  • The trial court found that the acceptance of the draft was conditional.
  • The trial court found that oral evidence was admissible to explain the terms and conditions of the acceptance.
  • The trial court also found, in legal effect, that the plaintiff released and discharged the defendants from any liability upon the draft.
  • The Court found that the evidence sustained these findings.
  • Trial court and appellate assessment of fraud and the defendants’ response
  • The Court found that the defendants conditionally accepted the draft relying upon the plaintiff’s representations.
  • The Court found that upon discovery of fraud, the defendants promptly notified the bank.
  • The Court found that the officials of the plaintiff then recognized the fraud and the conditional nature of the acceptance.
  • The Court found that the plaintiff accepted the return of the papers and the “burlap.”
  • The Court found ...(Subscriber-Only)

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