Ubas, Sr. vs. Chan

A cause of action exists when the complaint alleges an act or omission violating a right of another; the presumption of consideration under Section 24 of the Negotiable Instruments Law applies to negotiable instruments in the possession of the holder, dispensing with the need for proof of consideration and shifting the burden to the defendant to prove non-payment or lack of consideration; and the issuance of corporate checks does not negate the existence of a personal contract between the parties where privity of contract is established.

Petitioner Manuel C. Ubas, Sr. and respondent Wilson Chan entered into a verbal agreement dated January 1, 1998, whereby petitioner agreed to supply respondent with gravel, sand, and boulders for the construction of the Macagtas Dam in Barangay Macagtas, Catarman, Northern Samar. Respondent issued three checks totaling P1.5 million drawn from the account of Unimasters Conglomeration, Inc., where he served as President. When petitioner presented the checks for encashment on June 29, 1998, they were dishonored due to a stop payment order. Respondent claimed the checks were issued to a project engineer for replenishment of a revolving fund and were lost, not issued to petitioner.

• Petitioner filed a Complaint for Sum of Money with Application for Writ of Attachment against respondent before the RTC of Catarman, Northern Samar, Branch 19, docketed as Civil Case No. C-1071 on December 14, 2001.
• Petitioner alleged that respondent, doing business under the name and style of UNIMASTER, was indebted to him in the amount of P1,500,000.00 representing the price of boulders, sand, gravel, and other construction materials purchased for the Macagtas Dam project.
• Respondent issued three (3) bank checks dated January 31, 1998, March 13, 1998, and April 3, 1998, each in the amount of P500,000.00, payable to "CASH" and drawn from the account of Unimasters Conglomeration, Inc.
• Petitioner presented the subject checks for encashment on June 29, 1998, but they were dishonored due to a stop payment order.
• Petitioner sent a demand letter to respondent on December 5, 2001, detailing the serial numbers, dates, and amounts of the dishonored checks, which respondent received but failed to pay.
• Petitioner testified that he entered into a verbal agreement with respondent personally on January 1, 1998, and delivered the materials based on trust, without written contracts or delivery receipts.
• The checks were delivered to petitioner's office by respondent's worker on different occasions, and petitioner deposited them on June 29, 1998 at the behest of respondent.
• Respondent admitted signing the checks but claimed they were issued to Engineer Ereberto Merelos for replenishment of the project's revolving fund and were lost in January 1998, not issued to petitioner.
• Unimasters' comptroller, Belma Murillo, testified that the subject checks were issued for the revolving fund and that Engr. Merelos lost them, prompting respondent to issue a stop payment order on April 10, 1998.
• Respondent claimed that petitioner was not among their suppliers and that no delivery receipts, trip tickets, or purchase orders were processed for petitioner's alleged deliveries.
• Petitioner testified that he personally demanded payment from respondent at the Leyte Park Hotel office on several occasions, and respondent repeatedly promised to pay.
• Respondent did not file any criminal case for theft or take legal action to recover the allegedly lost checks worth P1.5 million.

• Respondent personally entered into a verbal contract with him for the delivery of construction materials amounting to P1.5 million, which remained unpaid despite repeated demands.
• Respondent is guilty of fraud in incurring the obligation because the subject checks issued to him were dishonored due to a stop payment order.
• The demand letter sent to respondent, which detailed the serial numbers, dates, and amounts of the checks, proves the existence of the transaction and respondent's acknowledgment of the debt.
• As holder of the checks signed by respondent, the presumption of consideration under Section 24 of the Negotiable Instruments Law applies, establishing the existence of the obligation without need for further documentary proof such as delivery receipts.
• The checks constitute evidence of indebtedness and proof of obligation under existing jurisprudence.
• Respondent's failure to file any criminal case for theft regarding the allegedly lost checks is inconsistent with human nature and experience if the checks were indeed stolen, casting doubt on his defense.

• The complaint states no cause of action because the checks do not belong to him personally but to Unimasters Conglomeration, Inc., a corporation with separate and distinct juridical personality from him.
• No contract existed between him and petitioner; if any right of action existed, it should be against Unimasters, not him personally.
• The subject checks were issued to Engr. Merelos for replenishment of the revolving fund and were lost in January 1998, not issued to petitioner, and a stop payment order was issued upon discovery of the loss.
• Unimasters is an indispensable party that was not impleaded, depriving the court of jurisdiction over the case.
• Petitioner failed to present any documentary proof (delivery receipts, trip tickets, purchase orders) establishing delivery of construction materials to the Macagtas Dam project, unlike other suppliers who submitted bills with supporting documents.
• The doctrine of piercing the veil of corporate fiction cannot apply as it was raised for the first time on appeal and no evidence was presented to establish the factual conditions for its application.

• Procedural Issues: N/A
• Substantive Issues:
  • Whether the Court of Appeals erred in dismissing the complaint for lack of cause of action against respondent personally.
  • Whether the presumption of consideration under Section 24 of the Negotiable Instruments Law applies to the subject checks.
  • Whether the doctrine of piercing the veil of corporate fiction is applicable in this case.

• Procedural: N/A
• Substantive:
  • The Court of Appeals erred in dismissing the complaint for lack of cause of action. A cause of action exists when the complaint alleges an act or omission by which a party violates a right of another, and its existence is determined by the allegations in the complaint.
  • Petitioner established a cause of action against respondent personally, not merely as president of Unimasters. The complaint alleged that respondent, doing business as UNIMASTER, entered into a verbal contract with petitioner. The demand letter was addressed personally to respondent, and petitioner's testimony established that he dealt with respondent personally and demanded payment from him personally at his office.
  • The presumption of consideration under Section 24 of the Negotiable Instruments Law applies. As the holder of the checks signed by respondent, it is presumed that they were issued for a valuable consideration, which dispenses with the necessity of documentary evidence to support the monetary claim.
  • Respondent failed to overcome the presumption of consideration. His defense that the checks were lost and not issued to petitioner was belied by the fact that petitioner sent a detailed demand letter regarding the checks, and respondent failed to file any criminal action for theft or take steps to recover the allegedly lost checks worth P1.5 million, which is inconsistent with ordinary human nature and experience.
  • Section 16 of the Negotiable Instruments Law also applies: when an instrument is no longer in the possession of the person who signed it and is complete in its terms, a valid and intentional delivery is presumed until the contrary is proved.
  • The issuance of corporate checks does not alter the nature of the obligation or negate the existence of a personal contract between the parties. The juridical tie was established during the contract's perfection stage when they agreed upon the purchase of materials on credit for P1.5 million.
  • The doctrine of piercing the veil of corporate fiction was properly rejected by the CA as it was raised for the first time on appeal and no evidence was presented to establish the factual conditions for its application.
  • Petitioner established his case by preponderance of evidence, showing probability of the truth of his claims regarding the personal contract and the unpaid obligation.

• Cause of Action — Defined as the act or omission by which a party violates a right of another; its existence is determined by the allegations in the complaint. In this case, the complaint sufficiently alleged a personal contract between petitioner and respondent for the supply of materials, establishing a cause of action against respondent personally.
• Presumption of Consideration (Section 24, Negotiable Instruments Law) — Every negotiable instrument is deemed prima facie to have been issued for a valuable consideration, and every person whose signature appears thereon is presumed to have become a party thereto for value. This presumption dispenses with the need for proof of consideration and shifts the burden to the defendant to prove otherwise. The Court applied this presumption to the checks held by petitioner.
• Presumption of Delivery (Section 16, Negotiable Instruments Law) — When an instrument is no longer in the possession of the person who signed it and is complete in its terms, a valid and intentional delivery by him is presumed until the contrary is proved. The Court applied this to presume valid delivery of the checks to petitioner.
• Burden of Proof in Money Claims — While the plaintiff-creditor has the burden to show that the defendant had not paid, where the plaintiff possesses and submits in evidence an instrument showing the indebtedness, a presumption that the credit has not been satisfied arises in his favor, requiring the defendant to present evidence to prove payment or lack of consideration.
• Preponderance of Evidence — Means probability of the truth; it is evidence that is more convincing to the court as worthy of belief than that which is offered in opposition. The Court found that petitioner established his case by preponderance of evidence.

• "Cause of action is defined as the act or omission by which a party violates a right of another. It is well-settled that the existence of a cause of action is determined by the allegations in the complaint."
• "Every negotiable instrument is deemed prima facie to have been issued for a valuable consideration; and every person whose signature appears thereon to have become a party thereto for value."
• "the vital function of legal presumption is to dispense with the need for proof."
• "In a suit for a recovery of sum of money, as here, the plaintiff-creditor has the burden of proof to show that defendant had not paid him the amount of the contracted loan. However, it has also been long established that where the plaintiff-creditor possesses and submits in evidence an instrument showing the indebtedness, a presumption that the credit has not been satisfied arises in his favor."
• "The Supreme Court's jurisdiction is limited to reviewing errors of law that may have been committed by the lower court. The Supreme Court is not a trier of facts."
• "Preponderance of evidence is a phrase that, in the last analysis, means probability of the truth. It is evidence that is more convincing to the court as worthy of belief than that which is offered in opposition thereto."

• Heirs of Ypon v. Ricaforte — Cited for the principle that the existence of a cause of action is determined by the allegations in the complaint.
• Ting Ting Pua v. Spouses Lo Bun Tiong — Cited for the rule on burden of proof in money claims and the presumption arising when the creditor possesses an instrument showing indebtedness.
• Madrigal v. Court of Appeals — Cited for the principle that the Supreme Court is not a trier of facts and defers to the factual findings of the trial court.
• Pacheco v. Court of Appeals — Cited for the recognition that a check constitutes an evidence of indebtedness and a veritable proof of an obligation.
• Malic v. Workmen's Compensation Commission — Cited for the principle that the vital function of legal presumption is to dispense with the need for proof.
• Asuncion v. Court of Appeals — Cited for the definition of obligation and its essential elements under the Civil Code.
• Heirs of Lim v. Lim — Cited for the definition of preponderance of evidence.
• Bernardo v. Court of Appeals — Cited in Madrigal for the policy of deferring to the trial judge's factual findings.

• Section 24, Act No. 2031 (Negotiable Instruments Law) — Presumption of consideration; every negotiable instrument is deemed prima facie issued for valuable consideration.
• Section 16, Act No. 2031 (Negotiable Instruments Law) — Presumption of delivery; when an instrument is no longer in the possession of the signer, valid and intentional delivery is presumed.
• Article 1156, Civil Code — Definition of obligation as a juridical necessity to give, to do or not to do.
• Rule 45, Rules of Court — Governs petitions for review on certiorari to the Supreme Court.