Case Summary (G.R. No. 172652)
Key Dates, Instruments, and Amounts
- July 5, 1995: Asian Bank (Global) purchased SBTC MC No. 037364 (P25,500,000) under a Bills Purchase Line Agreement and issued Asian Bank MC No. 025935 (P7,550,000) and MC No. 025939 (P10,905,350) payable to Gonzalo Bernardo (Nuguid), debited to Chiok’s Asian Bank savings account. Metrobank issued CC No. 003380 (P7,613,000) payable to Gonzalo Bernardo, debited to Chiok’s Metrobank savings account. Aggregate face value of the three checks: P26,068,350.00 (dollar equivalent agreed at US$1,022,288.50 at P25.50/USD).
- July 6, 1995: Chiok filed suit and obtained a temporary restraining order (TRO) against presenting or honoring the checks; RTC subsequently issued preliminary prohibitory injunction upon bond and later a writ.
- August 29, 2002: RTC rendered judgment in favor of Chiok awarding recovery against Global Bank and Metrobank and dismissing BPI’s intervention.
- May 5, 2006: Court of Appeals (CA) affirmed with modifications, rescinded the contract between Chiok and Nuguid, cancelled the checks, and ordered specific credits/interest rates.
- November 26, 2014: Supreme Court decision (consolidated petitions) reversing CA and denying Chiok’s complaint as to Metrobank and Global Bank in part, and ordering relief for BPI against Global Bank.
Applicable Law and Legal Framework
- Constitution: 1987 Philippine Constitution (applicable to decisions after 1990).
- Negotiable Instruments Law (including provisions on transfer without indorsement).
- Civil Code provisions cited: Article 1191 (rescission for reciprocal obligations), Article 1385 (effects of rescission), Article 1131 (relativity of contracts).
- Bangko Sentral ng Pilipinas (BSP) regulations and prior Monetary Board resolutions, BSP Circular/Manual provisions on clearing and drawing against uncollected deposits.
- Philippine Clearing House Corporation (PCHC) Rule Book and Clearing House Operating Memoranda (CHOM).
- Rules of Court (attachments and intervention rules; Rule 129 on judicial admissions).
Facts: Parties’ Transactions and Immediate Dispute
Chiok purchased manager’s checks and a cashier’s check funded from his bank accounts and caused their deposit into Nuguid’s account with FEBTC/BPI. Nuguid was expected to deliver the agreed U.S. dollars the same day but failed, prompting Chiok to request a stop payment and then to file suit seeking damages, injunctive relief, and declaration of ownership of the check proceeds. FEBTC/BPI, as collecting bank, allowed Nuguid to withdraw the proceeds (a disputed fact). Asian Bank (Global) and Metrobank were served with the TRO and injunction; Asian Bank refused payment, Metrobank initially refused but later honored its cashier’s check. FEBTC placed collection-related proceedings before the PCHC Arbitration Committee; the PCHC declined jurisdiction due to the pending TRO.
RTC Findings and Relief Granted
The Regional Trial Court (Branch 96, Quezon City) found Nuguid failed to prove delivery of dollars to Chiok, accepted CNB/CBC certifications indicating non-liability of Chiok to Nuguid, and held that purchaser of manager’s and cashier’s checks may rescind and judicially stop payment when the payee breaches reciprocal obligations. The RTC declared the writ of preliminary injunction permanent, ordered Global Bank to pay Chiok P34,691,876.71 (with adjustments and interest) and P215,000.00, and Metrobank to pay Chiok P7,613,000.00 with interest and attorney’s fees. The RTC dismissed BPI’s complaint-in-intervention for lack of merit and ordered joint-and-several costs against defendants and intervenor.
Court of Appeals Decision and Modifications
The Court of Appeals affirmed the RTC decision with key modifications: it treated the underlying contract between Chiok and Nuguid as rescinded under Article 1191, ordered cancellation of the three checks, and directed Global Business Holdings, Inc. (Global Bank) to credit Chiok’s savings account with P25,500,000 plus specified interest and amounts, and Metrobank to credit Chiok’s account with P7,613,000 with interest at 6% per annum. The CA also dismissed BPI’s complaint-in-intervention for failing to prove withdrawal by Nuguid and for BPI’s failure to show it was a holder in due course (checks not indorsed). The CA thus sustained Chiok’s recovery against the drawee banks, while denying BPI relief against Global Bank.
Issues Presented to the Supreme Court
Petitioners raised, inter alia: whether a purchaser of a manager’s or cashier’s check can legally obtain a court order to stop payment on the ground of payee’s breach (absence of consideration); whether drawee banks may be charged when they allegedly had knowledge defeating the payee’s title; and whether Metrobank was justified in paying CC No. 003380 despite the TRO. BPI questioned the CA’s deviation from established commercial law principles and whether judicial rescission and injunction were properly applied. Global Bank contended the CA erred in denying its contractual recourse against Chiok under the Bills Purchase Line Agreement and in fixing interest.
Procedural Matter: Joint Manifestation and Motion to Dismiss Petitions
A Joint Manifestation and Motion filed by Metrobank, Global Bank, and Chiok sought to forego claims against each other and to dismiss the proceedings; the Supreme Court required BPI to comment and declined to accept the joint request without proper documentation, corporate board resolutions, and because BPI had independent claims. The Court denied the Joint Manifestation and Motion and proceeded to decide on the merits. The Court also addressed improper substitution/special appearance of counsel and observed procedural requisites for substitution.
Legal Analysis — Nature and Effect of Manager’s and Cashier’s Checks
The Supreme Court reiterated that manager’s and cashier’s checks are primary obligations of the issuing bank, generally regarded as equivalent to cash and accepted in advance by issuance. While such checks are still subject to clearing for purposes like detecting material alteration, they are deemed pre-accepted upon issuance. Long-standing banking practice does not authorize countermanding these instruments based solely on an allegation that the payee breached a separate contract with the purchaser. The Court observed that allowable grounds for returning such checks under PCHC rules are limited to causes akin to material alteration or forgery, not mere contractual disputes between purchaser and payee.
Legal Analysis — Rescission (Article 1191) and Relativity of Contracts
Article 1191 allows rescission in reciprocal obligations when one party fails to perform, but rescission is effective only between contracting parties and is subject to the principle of relativity of contracts (Article 1131). The Supreme Court held that Chiok could seek rescission against Nuguid, but rescission cannot be asserted as a basis to nullify the banks’ separate obligations on the manager’s/cashier’s checks because the drawee banks were not parties to the Chiok–Nuguid contract. Thus the purchaser’s remedy against the payee is not translatable into a right to compel drawee banks to return proceeds absent specific legal grounds binding on the banks.
Court’s Conclusion on Injunction, Rescission, and Equitable Considerations
The Supreme Court disagreed with the CA’s and RTC’s application permitting judicial rescission to operate against the drawee banks and declined to recognize a purchaser’s right to stop payment by court order merely because the payee allegedly failed to perform. The Court emphasized that Chiok voluntarily purchased and deposited instruments that were “practically as good as cash” and that, as between two innocent persons, the one who made it possible (the purchaser) must bear the loss. The writ of preliminary prohibitory injunction enjoining Metrobank and Global Bank from honoring the checks was lifted and set aside insofar as it restrained the banks from performing their primary obligations.
Ruling on BPI’s Rights and Global Bank’s Liability
The Supreme Court found that (a) Nuguid had admitted that FEBTC/BPI paid him the value of the checks; such judicial admission is binding and does not require additional proof under Rule 129, Section 4; (b) BP
Case Syllabus (G.R. No. 172652)
Case Caption, Consolidation and Decision
- Reported at 748 Phil. 392; First Division; G.R. No. 172652 (Nov. 26, 2014) as lead entry; consolidated with G.R. No. 175302 and G.R. No. 175394.
- Parties and petitions:
- G.R. No. 172652: Metropolitan Bank and Trust Company (Metrobank), petitioner, vs. Wilfred N. Chiok (Chiok), respondent.
- G.R. No. 175302: Bank of the Philippine Islands (BPI), petitioner, vs. Wilfred N. Chiok, respondent.
- G.R. No. 175394: Global Business Bank, Inc. (formerly Asian Banking Corporation; referred to as Global Bank or Asian Bank), petitioner, vs. Wilfred N. Chiok, respondent.
- Decision authored by Justice Leonardo-De Castro; Court of Appeals decision under review: CA-G.R. CV No. 77508 dated May 5, 2006 and its Resolution dated November 6, 2006.
- Supreme Court disposition (summary): Denied a joint motion to dismiss; reversed and set aside the Court of Appeals decision and resolution; denied Chiok’s Amended Complaint for lack of merit; lifted the preliminary prohibitory injunction; ordered Global Bank to pay BPI P18,455,350.00 with interest computed on deposit-rates from July 7, 1995 until finality and 6% p.a. thereafter; rendered G.R. No. 175394 moot; left liabilities of the Nuguids under the Court of Appeals decision valid and subsisting; preserved Chiok’s remedy against Nuguid.
Factual Background — Parties’ Business Relationship and Usual Practices
- Respondent Wilfred N. Chiok engaged in dollar trading for several years, regularly buying U.S. dollars from Gonzalo B. Nuguid (a.k.a. Gonzalo Bernardo) at the prevailing exchange rate on the date of sale.
- Usual mechanics of the parties’ dealings:
- Chiok paid Nuguid either in cash or by manager’s / cashier’s check (to be picked up by Nuguid or deposited to Nuguid’s bank account).
- Delivery of dollars by Nuguid could occur the same day or up to a week later.
- The parties transacted in large sums (millions of pesos) over approximately six to eight years.
- Chiok maintained bank accounts with Metrobank and with Asian Banking Corporation (subsequently Global Business Bank, Inc.; hereafter Asian Bank / Global Bank).
- Chiok had a Bills Purchase Line Agreement (BPLA) with Asian Bank permitting Asian Bank to purchase checks drawn in Chiok’s favor, advancing to Chiok a discounted cash equivalent prior to normal clearing.
The July 5–6, 1995 Transactions and Instruments
- July 5, 1995: Under the BPLA, Asian Bank "purchased" SBTC Manager’s Check (MC) No. 037364 for P25,500,000.00 payable to Chiok and credited that amount to Chiok’s Asian Bank Savings Account No. 2-007-03-00201-3.
- Also on July 5, 1995, pursuant to Chiok’s instruction and debited from his account:
- Asian Bank MC No. 025935 — P7,550,000.00 payable to Gonzalo Bernardo (Nuguid).
- Asian Bank MC No. 025939 — P10,905,350.00 payable to Gonzalo Bernardo.
- Metrobank Cashier’s Check (CC) No. 003380 — P7,613,000.00 payable to Gonzalo Bernardo, debited from Chiok’s Metrobank Savings Account No. 154-42504955.
- Aggregate value of the three checks: P26,068,350.00.
- Chiok deposited the three checks into Nuguid’s account with Far East Bank & Trust Company (FEBTC; predecessor-in-interest of BPI).
- The agreed dollar equivalent to be delivered by Nuguid that afternoon was US$1,022,288.50 (based on P25.50 = $1.00 as of July 5, 1995).
- Nuguid failed to deliver the dollars that afternoon; Chiok sought to stop payment and was advised to obtain a court order within the 24-hour clearing period.
Immediate Procedural Acts — TRO and Preliminary Injunction
- July 6, 1995: Chiok filed a Complaint for damages with application for ex parte restraining order and/or preliminary injunction (Civil Case No. Q-95-24299, RTC Quezon City, Branch 96), later amended to seek declaration of legal ownership of the proceeds and withdrawal of the proceeds.
- Same day: RTC issued a temporary restraining order (TRO) directing the Nuguids not to present the checks and directing depositary banks (Asian Bank and Metrobank) not to honor them until further order.
- Responses from banks:
- Asian Bank refused to honor MC Nos. 025935 and 025939 in deference to the TRO.
- Metrobank claimed it refused to honor CC No. 003380 upon receipt of the TRO; however FEBTC informed Metrobank that the TRO was issued after the checks were presented and that FEBTC had accepted the transaction on July 5, 1995.
- FEBTC also noted a discrepancy alleged in the TRO (name stated as GONZALO NUGUID, whereas checks were payable to GONZALO BERNARDO) and questioned the TRO’s binding effect.
- Metrobank initially reiterated compliance with the TRO but later acknowledged the check when it became clear recovery of the proceeds was impracticable; Metrobank argued its primary obligation as issuer should not be affected by prior transactions between purchaser and payee.
Clearing-Related Proceedings and PCHC Arbitration
- FEBTC (collecting bank) filed a complaint against Asian Bank with the Philippine Clearing House Corporation (PCHC) Arbitration Committee (Arbicom Case No. 95-082) for collection of the Asian Bank MCs that FEBTC alleged had been withdrawn by Nuguid on July 5, 1995.
- PCHC Arbitration Committee declined jurisdiction by letter dated August 4, 1995, on the ground that any action might be interpreted as undermining the RTC’s jurisdiction or violating the TRO.
RTC Proceedings — Intervention, Findings and Judgment (Aug. 29, 2002)
- FEBTC filed a Complaint-in-Intervention (Oct. 18, 1995); originally denied (Feb. 6, 1996), intervention allowed on Motion for Reconsideration (Apr. 15, 1996).
- RTC findings:
- Nuguid failed to prove delivery of dollars to Chiok; Nuguid’s claim of delivery was highly doubtful.
- Certifications and bank returns relating to other checks indicated Chiok’s non-liability to Nuguid.
- Existence of a criminal estafa case filed by Chiok against Nuguid (March 29, 1996) concerning seven CBC checks.
- RTC legal conclusions:
- Manager’s and cashier’s checks may, under particular circumstances involving contractual reciprocal undertakings between purchaser and payee, be the subject of a Stop Payment Order from the purchaser (i.e., rescission and injunctive relief are available).
- Manager’s and cashier’s checks, though subject to regular clearing, are not precluded from refusal for cause under PCHC rules (citing Section 20 of the PCHC Rule Book and BSP manual provisions on clearing).
- Because TRO and injunction were timely served, the value of the three checks remained with Global Bank and Metrobank.
- Nuguid lacked valid title to the proceeds; Chiok entitled to repayment of what he paid for the checks.
- RTC monetary orders (dispositive portion):
- Declared writ of preliminary injunction permanent.
- Ordered Global Business Bank, Inc. to pay Chiok:
- P34,691,876.71 (less P255,000 attorney’s fees retained by Global), with legal interest at 12% p.a. from Sept. 30, 1999 until paid;
- P215,000.00 (excess debited from Chiok’s account) plus 12% p.a. from July 7, 1995 until paid;
- Attorney’s fees equivalent to 5% of total amount due.
- Ordered Metropolitan Bank & Trust Company to pay Chiok:
- P7,613,000.00 plus 12% p.a. interest from July 5, 1995 until paid;
- Attorney’s fees of 5% of total amount due.
- Held spouses Gonzalo B. and Marinella O. Nuguid jointly and severally liable with the depository banks for attorney’s fees.
- Dismissed BPI’s complaint-in-intervention for lack of merit.
- Ordered defendants and intervenor to pay costs of suit.
Appeals, Court of Appeals Decision (May 5, 2006) and Modifications
- Defendants and intervenor appealed; spouses Nuguid’s appeal dismissed (May 26, 2004) for failure to file appellant’s brief.
- Court of Appeals affirmed RTC Decision with material modifications:
- Rescinded contract to buy foreign currency (US$1,022,288.50) between Chiok and Nuguid; ordered cancellation of MC Nos. 025935 and 025939 and CC No. 003380.
- Ordered Global Business Holdings, Inc. (Global Bank/Asian Bank) to credit Chiok’s Savings Account No. 2-007-03-00201-3:
- P25,500,000.00 plus interest at 4% from Sept. 29, 1999 until withdrawn;
- P215,390.00 plus interest at 4% from July 7, 1995 until withdrawn.
- Ordered Metrobank to credit Chiok’s Savings Account No. 154-42504955 with P7,613,000.00 with interest at 6% p.a. from July 12, 1995 until withdrawal.
- Ordered spouses Nuguid to pay attorney’s fees equivalent to 5% of the total amount due to Chiok and costs of suit.
- Court of Appeals rationale:
- Applied Article 1191 (power to rescind reciprocal obligations) treating Chiok’s amended complaint (alleging ownership of proceeds and prayer to withdraw) as an action for rescission and damages.
- Found injunctive relief necessary to preserve effectiveness of any rescission judgment and to effect return of proceeds under Article 1385.
- Sustained dismissal of BPI’s complaint-in-intervention for failure to prove withdrawal by Nuguid and for failure to show BPI was holder in due course (checks were not indorsed, BPI did not present bills purchase agreement).
Issues Presented to the Supreme Court by Petitioners
- Metrobank (G.R. No. 172652) raised:
- (A) Whether it is legally possible for a purchaser of a manager’s or cashier’s check to stop payment through a court order on the ground of payee’s alleged breach of contractual obligation.
- (B) If such stop-payment is possible under the peculiar circumstances of the case, whether the Court of Appeals erred in concluding Metrobank had knowledge of circumstances defeating the payee’s title without citing specific evidence.
- (C) Whether the Court of Appeals erred in sustaining RTC order compelling Metrobank to pay Chiok P7,613,000.00 on the observation that Metrobank’s payment to FEBTC on July 12, 1995 was open defiance of the TRO.
- BPI (G.R. No. 175302) raised:
- (I) Whether the Court of Appeals detracted from established commercial law on the nature, causes and effects of manager