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CELY YANG v. CA

FACTS:

Petitioner Cely Yang and private respondent Prem Chandiramani entered into an agreement where Chandiramani was to give Yang a PCIB manager's check in exchange for two of Yang's manager's checks payable to the order of respondent Fernando David. They also agreed that the difference in the exchange would be their profit to be divided equally. Yang was also supposed to secure a dollar draft from FEBTC, payable to PCIB, which Chandiramani would exchange for another dollar draft issued by Hang Seng Bank Ltd. of Hong Kong. Yang then procured Equitable Cashier's Check and FEBTC Cashier's Check, both payable to the order of David, and FEBTC Dollar Draft, payable to PCIB. She gave these instruments to her business associate to be delivered to Chandiramani. However, Chandiramani did not show up and the cashier's checks and dollar draft supposedly got lost. It was later discovered that Chandiramani was able to get hold of these instruments without delivering the exchange consideration. Yang reported the loss to the police, but it was found that Chandiramani had already delivered the cashier's checks to David in exchange for US$360,000, which he deposited in his and his mother's accounts. Yang requested FEBTC and Equitable to stop payment on the lost instruments, but FEBTC lifted the stop payment order upon the representation of PCIB, allowing the holder of the dollar draft to receive the amount. Yang filed complaints against Equitable, Chandiramani, and David for injunction and damages. She also filed separate cases against FEBTC, PCIB, Chandiramani, and David. Writs of preliminary injunction were issued in both cases. David moved for dismissal of the cases against him, but his motions were denied.

The case involves a dispute between Cely Yang and Fernando David over the entitlement to the proceeds of two cashier's checks, as well as the liability of Far East Bank and Trust Company (FEBTC) and Philippine Commercial International Bank (PCIB) for allowing the encashment of a dollar draft despite a stop payment order. Civil Cases Nos. 5479 and 5492 were consolidated and proceeded to trial, but the proceedings were suspended due to a fire that destroyed the court records. After the records were reconstituted, the parties agreed to invest the disputed money in Treasury Bills. The trial court rendered a decision in favor of David, declaring him entitled to the proceeds of the cashier's checks and ordering Yang to pay him moral damages and attorney's fees. The court dismissed the complaint against FEBTC, PCIB, and Equitable Banking Corporation (EBC) but allowed Yang to file further action for reimbursement against Prem Chandiramani. Yang filed a motion for reconsideration, which was denied by the trial court. She then appealed to the Court of Appeals, which affirmed the trial court's judgment with modification, ordering Yang to pay PCIB a certain amount.

ISSUES:

  1. Whether Fernando David is a holder in due course of the checks in question.

  2. Whether the appellate court committed a reversible error in awarding damages and attorney's fees to David and PCIB.

  3. Whether David is a holder in due course of the checks.

  4. Whether David had an obligation to inquire about Chandiramani's possession of the checks.

  5. Whether David's acceptance of crossed checks makes him ineligible to be a holder in due course.

  6. Whether Respondent David is entitled to moral damages due to being needlessly dragged into the case.

  7. Whether Respondent PCIB is entitled to attorney's fees for being needlessly dragged into the case.

RULING:

  1. The Supreme Court found that Fernando David is not a holder in due course of the checks. Despite being named the payee of the checks, David failed to inquire from Chandiramani about how he acquired possession of the checks. This failure to inquire negates the finding that David was unaware of any defect or infirmity in the title of Chandiramani to the checks. Furthermore, as the checks were crossed, David should have been put on guard and made inquiries to determine if he received the checks for the intended purpose. His failure to do so further supports the conclusion that he is not a holder in due course.

  2. The Supreme Court did not directly rule on the issue of damages and attorney's fees awarded to David and PCIB. However, it acknowledged the appellate court's decision in finding the action filed by Yang against PCIB to be "clearly unfounded and baseless." The award of damages and attorney's fees to David and PCIB was justified under Article 2208 of the Civil Code as they were compelled to litigate to protect themselves.

  3. David is deemed a holder in due course of the checks. The presumption under Section 24 of the Negotiable Instruments Law creates a presumption that every party to an instrument acquired the same for a consideration or for value. The burden is on the petitioner to prove that David did not give valuable consideration for the checks. However, the petitioner failed to present convincing evidence to rebut the presumption. Both the trial court and the appellate court found that David gave Chandiramani US$360,000.00 as consideration for the checks.

  4. David had no obligation to inquire about Chandiramani's possession of the checks. David was not aware of any "stop payment" order and relied on the assurance from his bank that there was nothing wrong with the checks. David had no knowledge of any fraud or bad faith in Chandiramani's possession of the checks.

  5. David's acceptance of crossed checks does not make him ineligible to be a holder in due course. The crossing of a check relates to the mode of payment, indicating that it can only be deposited and not converted into cash. The purpose behind the crossing of the checks was satisfied by David, the payee, who duly deposited the crossed checks in his bank account.

  6. Yes, Respondent David is entitled to moral damages. The petitioner included David as a party in the proceedings even though he had no dealings with her and was not privy to her agreement with Chandiramani. The loss incurred by the petitioner was due to the acts or omissions of Chandiramani, not David. By needlessly dragging David into the case, the petitioner unduly delayed David from obtaining the value of the checks, caused him anxiety, and injured his business reputation. Based on the findings of fact, moral damages, which include mental anguish, serious anxiety, besmirched reputation, wounded feelings, social humiliation, and similar injury, are deemed appropriate.

  7. Yes, Respondent PCIB is entitled to attorney's fees. PCIB was dragged into the case on unfounded and baseless grounds, and it was compelled to litigate to protect its interests. Thus, an award of attorney's fees is justified under Article 2208 (2) of the Civil Code.

PRINCIPLES:

  • Every holder of a negotiable instrument is deemed prima facie a holder in due course.

  • A payee may be a holder in due course, but this presumption can be rebutted.

  • A crossed check should put the holder on guard and prompt inquiries to determine if it was received for the intended purpose.

  • In claims for damages and attorney's fees, the action must be clearly unfounded and baseless to justify such awards under Article 2208 of the Civil Code.

  • Every party to an instrument is presumed to have acquired the same for a consideration or value.

  • The burden of proof lies on the party attempting to rebut the presumption of valuable consideration for an instrument.

  • A holder in due course must meet all the requisites provided for in Section 52 of the Negotiable Instruments Law.

  • A holder in due course is not required to make inquiries about the possession of a negotiable instrument unless there are circumstances that should put the holder on inquiry.

  • The crossing of a check relates to the mode of payment, indicating that it can only be deposited and not converted into cash. The purpose of crossing a check is fulfilled if the payee deposits it in their account.

  • Moral damages may be awarded for mental anguish, serious anxiety, besmirched reputation, wounded feelings, social humiliation, and similar injury under Article 2217 of the Civil Code.

  • Attorney's fees may be awarded when the defending party is compelled to litigate to protect its interests, as provided under Article 2208 (2) of the Civil Code.