Llorente vs. Star City Pty Limited

A foreign corporation not doing business in the Philippines may sue before Philippine courts under the isolated transaction rule, provided it affirmatively pleads in its complaint that it is not doing business in the Philippines and is suing upon a singular and isolated transaction. The Court also held that a bank's liability as drawer of a negotiable instrument is not discharged by a stop payment order, and the drawer's secondary liability becomes primary when payment is stopped, triggering the holder's immediate right of recourse under the Negotiable Instruments Law.

Star City Pty Limited (SCPL) is an Australian corporation operating the Star City Casino in Sydney, New South Wales, Australia. Quintin Artacho Llorente was a patron of the casino who maintained Patron Account Number 471741. Equitable PCI Bank (EPCIB), now BDO Unibank, Inc., is a Philippine bank that drew the subject bank drafts. The case involves the application of the isolated transaction rule under the Corporation Code, which allows foreign corporations not doing business in the Philippines to sue in Philippine courts for isolated transactions, and the Negotiable Instruments Law governing the rights and liabilities of parties to negotiable instruments.

Star City Pty Limited (SCPL) is an Australian corporation operating the Star City Casino in Sydney, New South Wales, Australia. Quintin Artacho Llorente was a patron of the casino who maintained Patron Account Number 471741. On July 12, 2000, Llorente negotiated two Equitable PCI bank drafts with check numbers 034967 and 034968, each worth US$150,000.00, for a total of US$300,000.00, in order to play in the Premium Programme of the casino. This Premium Programme offered the patron a 1% commission rebate on his turnover at the gambling table and a 0.10% rebate for complimentary expenses. Before upgrading Llorente to this programme, SCPL contacted EPCIB to check the status of the subject drafts, and the latter confirmed that they were issued on clear funds without any stop payment orders. Llorente was then allowed to buy in on a Premium Programme and his front money account was credited with US$300,000.00.

On July 18, 2000, SCPL deposited the subject drafts with Thomas Cook Ltd. On August 1, 2000, it received advice from Bank of New York about a "Stop Payment Order," prompting it to make several demands upon Llorente to make good his obligation, the final demand being on August 22, 2002. Llorente refused to pay. SCPL also asked EPCIB on August 30, 2002 for a settlement, which the latter denied on the ground that it was Llorente who requested the Stop Payment Order and no notice of dishonor was given. On July 27, 2002, Llorente had applied for and executed a Stop Payment Order on the subject demand/bank drafts on the pretext that the drafts he issued/negotiated to SCPL allegedly exceeded the amount he was obliged to pay SCPL, contrary to his position that SCPL committed fraud and unfair gaming practices.

Llorente alleged that he caused the stoppage of the subject drafts' payment because SCPL's personnel and representatives committed fraud and unfair gaming practices during his stay in the casino from July 12 to July 17, 2000. He also countered that the case should be dismissed on the ground that SCPL lacks the legal capacity to sue since the "isolated transaction rule" presupposes that the transaction subject matter of the complaint must have occurred in the Philippines, which was not the situation since the transaction occurred in Australia. EPCIB, in its Answer, alleged SCPL's lack of personality to sue, denied that it unjustifiably refused to settle the obligation since it merely complied with Llorente's instructions to stop payment, and claimed there was no privity of contract between it and SCPL. EPCIB also filed a cross-claim against Llorente since it already reimbursed the face value of the subject drafts pursuant to Llorente's demand.

The RTC found that SCPL had the legal capacity to sue and held both Llorente and EPCIB solidarily liable for the value of the subject drafts. The RTC ruled that when Llorente, as payee of the subject drafts, signed at the back thereof, he became an indorser who warrants that on due presentment the instruments would be accepted or paid, and that if they be dishonored and the necessary proceedings on dishonor be duly taken, they will pay the amount thereof to the holder. The same was true for EPCIB, being the drawer of the subject drafts, as its liability as a drawer is not based on direct transaction but by virtue of the warranties it made within the purview of the Negotiable Instruments Law. The RTC also noted that Llorente and EPCIB could not seek refuge on the alleged lack of notice of dishonor since they were responsible for the dishonor of the subject drafts, and it would be futile to require such notice since it was EPCIB who countermanded the payment. The trial court did not consider Llorente's justification for ordering a stopped payment, finding that it was done to escape liability for his obligations with SCPL.

• Jurisdiction: Llorente argued that except for the mere issuance of the two bank drafts by EPCIB, all the material acts and transactions between him and SCPL transpired in Australia, and his front money account with SCPL was even credited while he was in Australia; thus, the sole jurisdiction to hear and decide SCPL's complaint pertains to the Australian Court rather than the Philippine Court.

• Capacity to Sue: Llorente argued that the condition sine qua non of the application of the isolated transaction rule is that the alleged delict or wrongful act must have occurred in the Philippines, and the transaction between him and SCPL was in pursuance of the latter's casino business.

• Violation of Corporation Code: Llorente argued that the designation of the law firm of Jimeno, Jalandoni and Cope (JJC Law) as attorney-in-fact of SCPL constitutes a gross violation of Section 69 of the Corporation Code because SCPL is not licensed to do business in the Philippines; as such, SCPL's complaint is a mere scrap of paper and any judgment rendered in connection therewith is a nullity.

• Unjust Enrichment: EPCIB countered that the CA correctly absolved it from liability by reason of unjust enrichment, citing Article 22 of the Civil Code, arguing that Llorente already received the value of the subject bank drafts from EPCIB, and requiring it again to pay the face value would amount to Llorente's unjust enrichment to its prejudice.

• No Privity of Contract: EPCIB argued that SCPL and EPCIB have no privity of contract as they never transacted with each other, and invoking the basic principle of relativity of contracts, it would be highly iniquitous if it is made liable in any way for whatever controversy arose between SCPL and Llorente.

• Jurisdiction: Whether the CA erred in affirming the RTC Decision despite the latter's alleged lack of jurisdiction over the subject matter of the complaint.

• Capacity to Sue: Whether the CA erred in finding that SCPL has legal capacity to sue under the isolated transaction rule.

• Attorney-in-Fact Designation: Whether the designation of the law firm of Jimeno, Jalandoni and Cope as attorney-in-fact of SCPL constitutes a gross violation of Section 69 of the Corporation Code.

• EPCIB's Liability: Whether the CA erred when it modified the RTC Decision by absolving EPCIB of any liability.

• Basis for Absolution: Whether in absolving EPCIB, the CA ignored the express provisions of law and anchored its ratio on evidence that was not at all proven in trial.

• Jurisdiction: No. The RTC has jurisdiction over SCPL's complaint because the amount demanded, US$300,000.00 plus legal interest, exceeds the P400,000.00 jurisdictional threshold under BP 129, Section 19, as amended by RA 7691, and the subject drafts were drawn by EPCIB, a Philippine bank.

• Capacity to Sue: No. SCPL has legal capacity to sue under the isolated transaction rule, having affirmatively pleaded in its complaint that it is a foreign corporation not doing business in the Philippines and is suing upon a singular and isolated transaction.

• Attorney-in-Fact Designation: No. The appointment of JJC Law as attorney-in-fact of SCPL is irrelevant to the latter's capacity to sue in the Philippines under an isolated transaction.

• EPCIB's Liability: Yes. The CA erred in absolving EPCIB from liability as the drawer of the subject demand/bank drafts; the Indemnity Agreement was not formally offered as evidence and cannot bind SCPL under the principle of relativity of contracts.

• Basis for Absolution: Yes. The CA anchored its ratio on the Indemnity Agreement that was never presented as evidence and never formally offered or identified by a proper witness in court, and the unjust enrichment principle is not proper because the party who received the benefit was Llorente, not SCPL.

• Jurisdiction: The complaint filed by SCPL against Llorente and EPCIB is for collection of sum of money, a civil case. Under BP 129, Section 19, RTCs have exclusive jurisdiction in all other cases in which the demand exceeds P300,000.00 or, in Metro Manila, exceeds P400,000.00. Since the amount demanded by SCPL, which is US$300,000.00 plus legal interest, is above P400,000.00, the RTC has jurisdiction. Additionally, from the point of view of territorial jurisdiction in criminal cases involving checks, any of the places where the check is drawn, issued, delivered, or dishonored has jurisdiction. The subject matter of the complaint are the subject drafts drawn by EPCIB, which is a Philippine bank, so the Philippines has jurisdiction.

• Capacity to Sue: Under Section 150 of the Revised Corporation Code, which is a verbatim reproduction of Section 133 of the Corporation Code, a foreign corporation transacting business in the Philippines without a license shall not be permitted to maintain any action in Philippine courts. However, the Court has held in a long line of cases that a foreign corporation not engaged in business in the Philippines may not be denied the right to file an action in Philippine courts for an isolated transaction. The right and capacity to sue depend upon the sufficiency of the allegations in the complaint. The qualifying circumstance that if a foreign corporation is doing business in the Philippines it is duly licensed, or if it is not, it is suing upon a singular and isolated transaction, is an essential part of the element of the plaintiff's capacity to sue and must be affirmatively pleaded. SCPL alleged in its complaint that it is a foreign corporation which operates its business at the Star City Casino in Sydney, Australia, that it is not doing business in the Philippines, and that it is suing upon a singular and isolated transaction. These averments sufficiently clothed SCPL with the necessary legal capacity to sue before Philippine courts.

• Attorney-in-Fact Designation: The appointment of JJC Law as attorney-in-fact of SCPL is irrelevant to the latter's capacity to sue in the Philippines under an isolated transaction. The RTC also observed that Llorente pleaded an affirmative relief for damages from SCPL by way of a counterclaim, which is contrary to his position that SCPL has no capacity to sue, because such contention entails that SCPL may be sued in the Philippines. Llorente is deemed to have admitted the capacity of SCPL to be subject of the judicial process.

• EPCIB's Liability: The CA erred in discharging EPCIB from its liability as the drawer of the subject demand/bank drafts. The Indemnity Agreement cannot be considered as evidence because it was not formally offered. Even if it were given some evidentiary weight, it will nevertheless not bind SCPL pursuant to the principle of relativity of contracts under Article 1311 of the Civil Code, which provides that contracts take effect only between the parties, their assigns and heirs. The liability of EPCIB as the drawer cannot be abrogated by virtue of the Indemnity Agreement because it arises from the subject demand/bank drafts, which are negotiable instruments, that it issued. Its secondary liability under Section 61 of the NIL became primary when the payment of the subject demand/bank drafts had been stopped, which had the same effect as if the instruments had been dishonored and notice thereof was given to the drawer pursuant to Section 84 of the NIL.

• Basis for Absolution: The unjust enrichment principle is not proper. EPCIB's invocation of unjust enrichment to avoid its liability as the drawer evinces bad faith in that rather than discharging its obligation as the drawer, EPCIB presents the Indemnity Agreement as an afterthought to shield itself from liability. For the unjust enrichment principle to apply against SCPL, it should be the party who is benefitted from the reimbursement or return of the funds by EPCIB. In this case, the party who received the benefit was Llorente. While EPCIB is clearly liable as the drawer of the subject demand/bank drafts, there is no legal basis to make it solidarily liable with Llorente. Under Article 1207 of the Civil Code, there is solidary liability only when the obligation expressly so states, or when the law or the nature of the obligation requires solidarity. Under the NIL and the nature of the liability of the drawer, solidary obligation is not provided. Thus, EPCIB's liability is not solidary but primary due to the SPO that Llorente issued against the subject demand/bank drafts. Both Llorente and EPCIB are individually and primarily liable as endorser and drawer of the subject demand/bank drafts, respectively. SCPL may proceed to collect the damages awarded simultaneously against both, or alternatively against either, provided that in no event can SCPL recover from both more than the damages awarded.

• Isolated Transaction Rule — A foreign corporation not doing business in the Philippines may sue before Philippine courts for an isolated transaction without a license. The qualifying circumstance that the corporation is not doing business in the Philippines and is suing upon a singular and isolated transaction must be affirmatively pleaded in the complaint as an essential part of the plaintiff's capacity to sue. The Court applied this rule to hold that SCPL, having alleged in its complaint that it is not doing business in the Philippines and is suing upon a singular and isolated transaction, has the legal capacity to sue before Philippine courts.

• Holder in Due Course — Under Section 52 of the NIL, a holder in due course is a holder who has taken the instrument under the following conditions: (a) it is complete and regular upon its face; (b) he became the holder before it was overdue and without notice that it had been previously dishonored; (c) he took it in good faith and for value; and (d) at the time it was negotiated to him, he had no notice of any infirmity or defect in the title of the person negotiating it. Every holder is presumed prima facie to be a holder in due course, and one who claims otherwise has the onus probandi to prove that one or more of the conditions are lacking. The Court applied this doctrine to affirm the finding that SCPL is a holder in due course, as EPCIB failed to prove that the elements of good faith and value are wanting.

• Liability of the Drawer — Under Section 61 of the NIL, the drawer by drawing the instrument admits the existence of the payee and his then capacity to indorse, and engages that on due presentment the instrument will be accepted or paid, or both, according to its tenor, and that if it be dishonored and the necessary proceedings on dishonor be duly taken, he will pay the amount thereof to the holder. The drawer's liability is secondary, but when payment has been stopped by the drawer, the relation between the drawer and payee becomes the same as if the instrument had been dishonored and notice thereof given to the drawer, changing the conditional liability to one free from the condition. The Court applied this doctrine to hold that EPCIB's secondary liability as drawer became primary when Llorente issued the Stop Payment Order, triggering SCPL's immediate right of recourse.

• Relativity of Contracts — Under Article 1311 of the Civil Code, contracts take effect only between the parties, their assigns and heirs, except in cases where the rights and obligations arising from the contract are not transmissible by their nature, or by stipulation or by provision of law. The Court applied this doctrine to hold that the Indemnity Agreement between Llorente and EPCIB, even if given evidentiary weight, cannot bind SCPL, a non-party to the agreement.

• Unjust Enrichment — Under Article 22 of the Civil Code, every person who through an act or performance of another, or any other means, acquires or comes into possession of something at the expense of the latter without just or legal ground, shall return the same to him. The Court held that for the unjust enrichment principle to apply against SCPL, it should be the party who is benefitted from the reimbursement or return of the funds by EPCIB; in this case, the party who received the benefit was Llorente, not SCPL.

• "A foreign corporation that is not doing business in the Philippines must disclose such fact if it desires to sue in Philippine courts under the 'isolated transaction rule' because without such disclosure, the court may choose to deny it the right to sue." — This passage articulates the procedural requirement for a foreign corporation to invoke the isolated transaction rule, which is central to the Court's ruling on SCPL's capacity to sue.

• "The right and capacity to sue, being, to a great extent, matters of pleading and procedure, depend upon the sufficiency of the allegations in the complaint. Thus, as to a foreign corporation, the qualifying circumstance that if it is doing business in the Philippines, it is duly licensed or if it is not, it is suing upon a singular and isolated transaction, is an essential part of the element of the plaintiff's capacity to sue and must be affirmatively pleaded." — This passage establishes the pleading requirement for foreign corporations seeking to sue in Philippine courts, which the Court applied to uphold SCPL's capacity to sue.

• "Stopping payment does not discharge the liability of the drawer of a check or other bill to the payee or other holder." — This passage states the controlling rule on the effect of a stop payment order on the drawer's liability, which is central to the Court's ruling reinstating EPCIB's liability.

• "The liability of EPCIB as the drawer cannot be abrogated by virtue of the Indemnity Agreement because it arises from the subject demand/bank drafts, which are negotiable instruments, that it issued. Its secondary liability under Section 61 of the NIL became primary when the payment of the subject demand/bank drafts had been stopped which had the same effect as if the instruments had been dishonored and notice thereof was given to the drawer pursuant to Section 84 of the NIL." — This passage articulates the ratio decidendi for reinstating EPCIB's liability as drawer, explaining the conversion of secondary to primary liability upon the stop payment order.

• The Commissioner of Customs vs. K.M.K. Gani, Indrapal & Co., 261 Phil. 717 (1990) — Cited as controlling precedent for the proposition that a foreign corporation not engaged in business in the Philippines may not be denied the right to file an action in Philippine courts for an isolated transaction, and that the qualifying circumstance must be affirmatively pleaded.

• Atlantic Mutual Insurance Co. vs. Cebu Stevedoring Co., 124 Phil. 463 (1966) — Cited as precedent for the rule that the qualifying circumstance of a foreign corporation's capacity to sue is an essential part of the plaintiff's capacity to sue and must be affirmatively pleaded.

• New York Marine Managers, Inc. vs. Court of Appeals, 319 Phil. 538 (1995) — Cited as precedent for the requirement that the ultimate fact that a foreign corporation is not doing business in the Philippines must first be disclosed for it to be allowed to sue in Philippine courts under the isolated transaction rule.

• Lorenzo Shipping Corp. vs. Chubb and Sons, Inc., 475 Phil. 169 (2004) — Cited as precedent for the rule that a foreign corporation needs no license to sue before Philippine courts on an isolated transaction.

• Bank of Philippine Islands vs. Roxas, 562 Phil. 161 (2007) — Cited as precedent for the definition of "value" in the context of a holder in due course and the presumption that every holder is prima facie a holder in due course.

• Eastern Shipping Lines, Inc. vs. Court of Appeals, 304 Phil. 236 (1994) — Cited as the basis for the guidelines on interest, which the Court modified pursuant to Lara's Gifts & Decors, Inc. vs. Midtown Industrial Sales, Inc.

• Nacar vs. Gallery Frames, 716 Phil. 267 (2013) — Cited as the basis for the guidelines on interest, which the Court modified pursuant to Lara's Gifts & Decors, Inc. vs. Midtown Industrial Sales, Inc.

• Lara's Gifts & Decors, Inc. vs. Midtown Industrial Sales, Inc., G.R. No. 225433, August 28, 2019 — Cited as the basis for the revised guidelines on interest applied by the Court in modifying the monetary awards.

• Section 150, Republic Act No. 11232 (Revised Corporation Code of the Philippines) — Provides that no foreign corporation transacting business in the Philippines without a license shall be permitted to maintain or intervene in any action, suit or proceeding in any court or administrative agency of the Philippines. The Court applied this provision to determine SCPL's capacity to sue, noting that it is a verbatim reproduction of Section 133 of the Corporation Code.

• Section 133, Batas Pambansa Blg. 68 (Corporation Code of the Philippines) — The predecessor provision to Section 150 of the Revised Corporation Code, which the Court noted was repealed by the Revised Corporation Code but whose wording was reproduced verbatim.

• Section 19, Batas Pambansa Blg. 129, as amended by RA 7691 — Defines the exclusive jurisdiction of RTCs, including cases where the demand exceeds P300,000.00 or, in Metro Manila, exceeds P400,000.00. The Court applied this provision to determine that the RTC had jurisdiction over SCPL's complaint.

• Section 52, Negotiable Instruments Law — Defines the conditions for a holder in due course. The Court applied this provision to affirm the finding that SCPL is a holder in due course.

• Section 57, Negotiable Instruments Law — Provides that a holder in due course holds the instrument free from any defect in the title of prior parties and free from defenses available to prior parties among themselves, and may enforce payment of the instrument for the full amount thereof against all parties liable thereon. The Court applied this provision to hold that SCPL may enforce payment against EPCIB.

• Section 61, Negotiable Instruments Law — Defines the liability of the drawer. The Court applied this provision to hold EPCIB liable as the drawer of the subject demand/bank drafts.

• Section 84, Negotiable Instruments Law — Provides that when the instrument is dishonored by non-payment, an immediate right of recourse to all parties secondarily liable thereon accrues to the holder. The Court applied this provision to hold that the stop payment order triggered SCPL's immediate right of recourse against EPCIB.

• Article 22, Civil Code — Provides that every person who through an act or performance of another, or any other means, acquires or comes into possession of something at the expense of the latter without just or legal ground, shall return the same to him. The Court applied this provision to reject EPCIB's invocation of unjust enrichment.

• Article 1311, Civil Code — Provides that contracts take effect only between the parties, their assigns and heirs. The Court applied this provision to hold that the Indemnity Agreement between Llorente and EPCIB cannot bind SCPL.

• Article 1207, Civil Code — Provides that there is solidary liability only when the obligation expressly so states, or when the law or the nature of the obligation requires solidarity. The Court applied this provision to hold that EPCIB's liability is not solidary but primary.

• Article 2154, Civil Code — Provides that if something is received when there is no right to demand it, and it was unduly delivered through mistake, the obligation to return it arises. The Court applied this provision to reject the unjust enrichment principle against SCPL.

• Article 2163, Civil Code — Provides that there is payment by mistake if something which has never been due or has already been paid is delivered. The Court applied this provision to reject the unjust enrichment principle against SCPL.

Peralta, C.J. (Chairperson), J. Reyes, Jr., Lazaro-Javier, and Lopez, JJ., concurred.