Case Summary (G.R. No. L-1573)
Petitioners and Respondents
Petitioners in consolidated proceedings: (a) Quintin Llorente (G.R. No. 212050) who sought review of the CA decision affirming RTC judgment against him; (b) Star City Pty Limited (SCPL) (G.R. No. 212216) which also sought review. Respondent/third party of principal relevance: Equitable PCI Bank (EPCIB), which issued the two bank drafts and was initially held solidarily liable by the RTC and later absolved by the CA before the Supreme Court reversed that absolution in part.
Key Dates
Relevant procedural and transactional dates drawn from the record: negotiation of two EPCIB drafts to Llorente on 12 July 2000 (US$150,000 each; total US$300,000); drafts deposited by SCPL with Thomas Cook Ltd. on 18 July 2000; Bank of New York advised of a stop payment on 1 August 2000; final demand by SCPL on 22 August 2002; EPCIB asked for settlement on 30 August 2002; writ of preliminary attachment issued by RTC on 28 January 2003; Indemnity Agreement (Quitclaim, Indemnity and Confidentiality Agreement) between EPCIB and Llorente executed on 8 August 2002; RTC decision dated 16 April 2009; CA decision dated 30 September 2013; CA resolution denying reconsideration dated 10 April 2014; Supreme Court decision disposing consolidated petitions rendered January 15, 2020.
Applicable Law and Authorities Cited
Primary statutory and jurisprudential sources relied upon in the decisions: Negotiable Instruments Law (NIL), sections relevant to holder in due course (Sec. 52), liability of drawer (Sec. 61), and remedies on dishonor (Sec. 84); Revised Corporation Code, Sec. 150 (verbatim of former Sec. 133, Corporation Code / BP Blg. 68) regarding foreign corporations doing business without license; BP 129 jurisdictional thresholds; Civil Code provisions invoked (Articles 1311, 1207, 2154, 2163); precedents and doctrine cited in the record (cases cited by CA and RTC); American authorities on drafts and bank drafts used for doctrinal explanation.
Factual Background
SCPL alleged that Llorente, while a patron at its Sydney casino, negotiated two EPCIB bank drafts dated 12 July 2000 in the aggregate of US$300,000 to buy into SCPL’s Premium Programme. SCPL credited his front-money account and later deposited the drafts with Thomas Cook Ltd. SCPL received notice of a stop-payment order on the drafts, made repeated demands on Llorente and EPCIB for payment, and, when payment was refused, filed a complaint for collection of sum of money and sought preliminary attachment. Llorente countered that he had caused stoppage because SCPL committed fraud and unfair gaming practices, and also contended that SCPL lacked capacity to sue in Philippine courts under the “isolated transaction” rule. EPCIB denied liability, contending it acted on Llorente’s instructions to stop payment, lacked privity with SCPL, and filed a cross-claim against Llorente after reimbursing him.
Procedural History
SCPL’s complaint was docketed at RTC, Makati (Civil Case No. 02-1423). The RTC granted SCPL’s application for a writ of preliminary attachment, and on April 16, 2009 rendered judgment finding both Llorente and EPCIB solidarily liable for US$300,000 plus attorney’s fees and costs, denying counterclaims and cross-claims. Llorente and EPCIB appealed to the Court of Appeals. The CA affirmed the RTC judgment but modified it by absolving EPCIB from liability on the ground that EPCIB had already reimbursed Llorente under an Indemnity Agreement and equity would bar double recovery. The CA denied motions for reconsideration. Both Llorente and SCPL separately filed petitions for review on certiorari before the Supreme Court (Rule 45), leading to consolidated consideration.
Issues Presented to the Supreme Court
Significant issues identified were: (1) whether SCPL had the legal capacity to sue in Philippine courts under the isolated transaction rule and whether the RTC had jurisdiction; (2) whether SCPL was a holder in due course of the negotiable instruments; (3) whether EPCIB was properly discharged from liability by the CA given the Indemnity Agreement and the principle of unjust enrichment; and for Llorente, whether the designation of JJC Law as SCPL’s attorney-in-fact violated Section 69 of the Corporation Code.
Supreme Court’s Analysis on Capacity to Sue and Jurisdiction
The Court confirmed that the governing statutory provision (Section 150 of the Revised Corporation Code, mirroring former Section 133 of BP Blg. 68) does not bar a foreign corporation not doing business in the Philippines from suing here on a singular and isolated transaction, provided the pleading affirmatively states that the corporation is not doing business in the Philippines and that the action arises from a singular isolated transaction. SCPL’s complaint expressly averred it was a foreign corporation not doing business in the Philippines and that it sued upon a singular isolated transaction; this satisfied the pleading requirements and established legal capacity to sue under the isolated transaction rule. Regarding jurisdiction, the Court held RTC territorial and subject-matter jurisdiction was proper because the amount in controversy (US$300,000) exceeded the Metro Manila RTC threshold and because negotiable instruments drawn by a Philippine bank may be sued where they were drawn, issued, delivered, or dishonored; here EPCIB, a Philippine bank, drew the drafts, giving Philippine courts territorial pertinence.
Supreme Court’s Analysis on Holder in Due Course and Good Faith
The CA’s finding that SCPL qualified as a holder in due course under Sec. 52 of the NIL was upheld. The Court reiterated the elements for holder in due course (complete and regular on its face; acquired before maturity and without notice of prior dishonor; taken in good faith and for value; and without notice of infirmity in prior title). SCPL showed value because the drafts were used by Llorente to buy into the casino’s Premium Programme providing commission/rebate rights; it had no notice of prior dishonor at the time of negotiation and had verified clear funds with EPCIB. The CA’s evaluation of good faith, supported by expert judicial affidavit evidence regarding the statistical possibility of no face cards in several baccarat deals and the fact that Llorente continued to play despite alleged irregularities, was sustained as sufficiently countervailing to Llorente’s fraud allegations.
Supreme Court’s Analysis on EPCIB’s Liability as Drawer
The Court reiterated the NIL rule that a drawer admits the existence and capacity of the payee and warrants that on due presentment the instrument will be accepted or paid, and that, if dishonored and necessary proceedings taken, the drawer will pay (Sec. 61). The drawer’s liability is ordinarily secondary but may become primary when conditions for presentment and notice are dispensed with or when the drawer countermanded payment; stopping payment ordinarily does not discharge the drawer’s liability to holders in due course. The Court held that EPCIB, as drawer of the negotiable bank drafts, was liable under the NIL, and that issuance of the Stop Payment Order (SPO) by Llorente did not relieve EPCIB’s liability to SCPL as holder in due course.
Supreme Court’s Rejection of CA’s Reliance on the Indemnity Agreement and Unjust Enrichment
The CA had absolved EPCIB on grounds that EPCIB had paid Llorente the face value under an August 8, 2002 Quitclaim, Indemnity and Confidentiality Agreement and that holding EPCIB liable would unjustly enrich Llorente. The Supreme Court found two principal flaws in that rationale: (1) the Indemnity Agreement was not formally offered in evidence and, therefore, had no proper probative weight; even if considered, it bound only EPCIB and Llorente and could not defeat SCPL’s rights as a holder in due course under the doctrine of the relativity of contracts (Civil Code, Art. 1311); (2) invoking unjust enrichment to excuse EPCIB’s statutory liability as drawer was improper because the NIL establishes the rights and liabilities of parties to negotiable instruments and equity cannot contravene those statutory obligations. Further, the Indemnity Agreement itself contemplated that Llorente would post an indemnity bond in favor of EPCIB, SCPL and other potentially prejudiced parties, reflecting EPCIB’s continued recourse against Llorente.
Supreme Court’s Determination of Nature of EPCIB’s Liability and Relief
The Court concluded EPCIB’s liability was individual and primary (not solidary) together with Llorente: the drawer became primarily liable after the SPO/dishonor, but solidary liability between drawer and endorser was not established because solidarity requires explicit contractual stipulation or statutory imperative. Therefore, SCPL may proceed to collect from either party, but cannot recover more
Case Syllabus (G.R. No. L-1573)
Parties, Case Numbers, and Courts
- Petitioner in G.R. No. 212050: Quintin Artacho Llorente (Llorente).
- Respondent in G.R. No. 212050: Star City Pty Limited (SCPL), represented by Jimeno Jalandoni and Cope Law Offices as attorney‑in‑fact.
- Petitioner in G.R. No. 212216: Star City Pty Limited (SCPL), represented by Jimeno Cope & David Law Offices as attorney‑in‑fact.
- Respondents in G.R. No. 212216: Quintin Artacho Llorente and Equitable PCI Bank (EPCIB, now BDO Unibank, Inc.).
- Trial court: Regional Trial Court (RTC), Branch 134, Makati City — Civil Case No. 02‑1423.
- Appellate court: Court of Appeals (CA) — CA‑G.R. CV No. 94736 (Decision dated September 30, 2013; Resolution dated April 10, 2014).
- Supreme Court: Consolidated Rule 45 petitions filed by Llorente (G.R. No. 212050) and SCPL (G.R. No. 212216) assailing the CA Decision and Resolution.
Factual Background
- SCPL is an Australian corporation operating Star City Casino in Sydney, New South Wales, Australia.
- Llorente was a patron at SCPL’s Sydney casino and maintained Patron Account No. 471741.
- On 12 July 2000, Llorente negotiated two Equitable PCI bank drafts (check nos. 034967 and 034968) worth US$150,000.00 each, totaling US$300,000.00 (the "subject drafts"), to play in SCPL’s Premium Programme.
- The Premium Programme entitled a patron to 1% commission rebate on turnover and 0.10% rebate for complimentary expenses; SCPL credited Llorente’s front money account with US$300,000.00.
- Prior to upgrading Llorente to the Premium Programme, SCPL contacted EPCIB to verify the status of the drafts; EPCIB confirmed the drafts were issued on clear funds without stop payment orders.
- On 18 July 2000, SCPL deposited the subject drafts with Thomas Cook Ltd.
- On 1 August 2000, SCPL received advice from Bank of New York about a "Stop Payment Order."
- SCPL made several demands on Llorente to make good his obligation; the final demand noted was on 22 August 2002; Llorente refused to pay.
- SCPL requested settlement from EPCIB on 30 August 2002, which EPCIB denied, stating Llorente requested the Stop Payment Order and no notice of dishonor was given to SCPL.
- RTC found indicia of Llorente’s intent to renege: leaving hotel premises without notifying SCPL, failing to ensure payment of services he availed, ordering a Stop Payment Order despite knowledge that the checks would answer for casino services, and transferring residence without notifying SCPL — prompting issuance of a writ of preliminary attachment on 28 January 2003.
Pleadings, Counterclaims, and Cross‑claims
- SCPL filed a complaint for collection of sum of money with prayer for preliminary attachment against Llorente and EPCIB (Civil Case No. 02‑1423).
- Llorente countered that he ordered stoppage of the drafts because SCPL personnel committed fraud and unfair gaming practices during his stay (12–17 July 2000), and he argued SCPL lacked capacity to sue under the isolated transaction rule because the transaction occurred in Australia.
- EPCIB denied unjustified refusal to settle, asserting it followed Llorente’s instruction to stop payment; it disputed privity with SCPL and filed a cross‑claim against Llorente, alleging reimbursement of the face value of the drafts to Llorente and seeking relief from liability.
RTC Decision (April 16, 2009)
- RTC found SCPL had legal capacity to sue and ruled both Llorente and EPCIB solidarily liable for US$300,000.00, the face value of the subject drafts.
- RTC rationale:
- When Llorente, as payee, signed the back of the drafts, he became an endorser warranting payment on presentment and promising to pay if dishonored and proper proceedings on dishonor were taken.
- EPCIB, as drawer, bore liability under the Negotiable Instruments Law (NIL) by virtue of warranties inherent in drawing the drafts, even absent privity.
- Notice of dishonor need not bar SCPL because Llorente and EPCIB were responsible for the dishonor, and notice would be futile because EPCIB countermanded payment.
- Llorente’s stated reason for stopping payment (alleged fraud) was disbelieved; the court found it was done to escape liability.
- Decretal relief awarded by RTC:
- Joint and several payment by Llorente and EPCIB to SCPL of US$300,000.00.
- Joint and several attorney’s fees equal to 5% of amount claimed (US$15,000.00).
- Costs of suit.
- Denial of counterclaims and EPCIB’s cross‑claim for lack of merit.
Court of Appeals Issues and Ruling (Decision dated September 30, 2013; Resolution dated April 10, 2014)
- CA identified three principal issues on appeal:
- SCPL’s legal personality to sue under the isolated transaction rule.
- Whether SCPL is a holder in due course of the subject drafts.
- Whether EPCIB is solidarily liable.
- On SCPL’s personality to sue:
- CA held SCPL sufficiently pleaded it was a foreign corporation not doing business in the Philippines and was suing on a singular and isolated transaction, thereby satisfying requirements to sue under the isolated transaction rule.
- CA noted drafts were drawn by EPCIB (a Philippine bank), so the suit could be filed where drafts were drawn/issued (Philippines) or where indorsement/dishonor occurred (Australia).
- On holder in due course:
- CA held SCPL met requirements for holder in due course: the drafts were complete on their face, negotiated for value, taken in good faith, and without notice of prior dishonor.
- CA accepted the judicial affidavit of Paul Arbuckle (Star City’s Head of Gaming, 30 years’ experience) explaining the probability of no face cards appearing over several Baccarat deals, thereby supporting SCPL’s good faith against Llorente’s allegation of impossible outcomes.
- CA observed Llorente continued to play despite alleged irregularities, which undermined his fraud claim.
- On EPCIB’s liability:
- CA modified RTC decision by absolving EPCIB from any liability, reasoning EPCIB had already paid Llorente the face amount of the drafts evidenced by a Quitclaim, Indemnity and Confidentiality Agreement dated 8 August 2002 (the "Indemnity Agreement").
- CA concluded holding EPCIB solidarily liable after it refunded Llorente would sanction unjust enrichment by permitting Llorente to be paid twice at EPCIB’s expense.
- CA dispositive: Partially granted appeal; affirmed RTC decision with modification that EPCIB is absolved from liability.
- Motions for reconsideration by Llorente and SCPL were denied in CA Resolution dated April 10, 2014.
Issues Presented to the Supreme Court in the Consolidated Petitions
- G.R. No. 212050 (Llorente) raised:
- Whether the CA erred in affirming the RTC despite lack of jurisdiction over subject matter.
- Whether CA erred finding SCPL had legal capacity to sue under the isolated transaction rule.
- Whether appointment/resignation of Jimeno, Jalandoni & Cope (JJC Law) as attorney‑in‑fact for SCPL violated Section 69 of the Corporation Code.
- G.R. No. 212216 (SCPL) raised:
- Whether CA erred in absolving EPCIB of liability.
- Whether the CA relied on evidence not proven at trial or ignored express provisions of law in absolving EPCIB.
Applicable Statutory and Doctrinal Authorities Recognized by the Court
- Revised Corporation Code (RA 11232), Section 150 (verbatim in opinion):
- "No foreign corporation transacting business in the Philippines without a license ... shall be permitted to maintain or intervene in any action ... ; but such corporation may be sued ... on any valid cause of action recognized under Philippine laws."
- Note that Section