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Associated Bank vs. Court of Appeals

G.R. No. 107918
June 14, 1994

FACTS:
Private respondents, Visitacion Serra Flores and Ma. Asuncion
Flores, filed a complaint for violation of the Negotiable Instruments
Law and damages against Associated Bank (AB). In the case, they
are seeking recovery of the amount of 900,913.60PHP from
Associated Bank contending that the bank charged the checks from
their account despite the alterations made to the check without their
consent. The said alteration substituted the original payee, Filipinas
Shell, with Ever Trading and DBL Trading by a certain supervisor,
Jeremias Cabrera.

In answer therein, Associated Bank claimed that such checks

appeared to be free from any irregularities. It averred that it
observed proper diligence and care before honouring such checks. It
alleged instead that the cause of the loss was the negligence of the
private respondents in their business dealings. In addition, Associated
Bank filed a Third Party Complaint, with leave of court, against
Philippine Commercial International Bank (PCIB), Far East Bank and
Trust Company (FEBTC), Security Bank and Trust Company (SBTC)
and Citytrust Banking Corporation (CBC) for reimbursement,
contribution, and indemnity. The third party defendants were
impleaded because they were apparently the collecting banks for the
issued checks and by virtue of their bank guarantee for all checks
sent for clearing to the Philippine Clearing House Corporation (PCHC)
as provided under Section 17 of the PCHC Clearing House Rules and
Regulations.

The principal defenses of the third party defendants (PCIB,

FEBTC, SBTC and CBC) rest upon (1) their claim of negligence on
the part of the original plaintiffs which will now estop them from
recovery of their claims and (2) that the Regional Trial Court, where
the case is currently pending is without jurisdiction as arbitration has
been provided by the Rules and Regulations of the PHCH, where the
Banks in this case are members. In such rules, it is provided that
member banks must first undergo arbitration proceedings before
invoking the court’s jurisdiction in cases of disputes among
themselves.

For Associated Bank, however, it argues that the arbitration

clause provided in the PCHC Rules and Regulations covering disputes
among member banks does not apply in this case as the original
plaintiffs were private individuals and the third party complaint
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against the other member banks are but a consequence of the

original complaint imitated by private individuals.

The Regional Trial Court disagrees. It dismissed the third party

complaint against the other member banks for lack of jurisdiction. In
the view of the RTC, a third party complaint is a case independent
and distinct from the original complaint. Hence, the arbitration clause
should be applied in the resolution of disputes among member banks
(in this case, Associated Bank vs PCIB, FEBTC, SBTC and CBC).

Associated Bank’s Motion for Reconsideration was likewise

denied prompting an appeal to the Court of Appeals who, likewise,
found merit in the RTC’s ruling and decided against Associated Bank.
Thus, Associated Bank raised the case before the Supreme Court
through a Petition for Review on Certiorari.

ISSUE:
Whether or not the Arbitration Clause of the Clearing House
Rules and Regulations of the PCHC is applicable in the present
dispute

HELD:
The Supreme Court upheld the decision of the Court of Appeals
affirming the ruling of the RTC finding that the arbitration clause
provided for in the PCHC House Rules and Regulations should be
applied in the present case.

Section 36.1 of said Rules and Regulations provides: “Any

dispute or controversy between two or more clearing participants
involving any check/item cleared thru PCHC shall be submitted to the
Arbitration Committee…”

Furthermore, Section 36.6 of the same Rules and Regulations

maintains: “The fact that a bank participates in the clearing
operations of the PCHC shall be deemed its written and subscribed
consent to the binding effect of this arbitration agreement…”

In an earlier case, Banco de Oro Savings and Mortgage Banks

vs. Equitable Banking Corporation, the Supreme Court has
established the validity of said Rules and the jurisdiction of the PCHC
as a proper venue for resolving conflicts among member banks.

The arbitration provision allows for the resolution of minor

disputes among member banks and it operates not to deny the
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courts any jurisdiction with regards such disputes as an appeal may

be taken before the RTC for questions of law and facts, if warranted
and appropriate.

This leaves little question as to the applicability of the said

provisions on the present dispute. By mere participation, the member
banks are deemed to have consented to these rules and thus, have
placed themselves to undergo arbitration proceedings in case of
disputes among themselves. Claims relating to the regularity of
checks cleared by banking institutions, as what this case is all about,
are among those claims which should be first submitted for
arbitration by the PCHC. Thus, Associated Bank cannot claim
exception from the given provisions. It must undertake arbitration
proceedings before invoking the court’s jurisdiction.

Associated Bank’s allegation that the third party complaint is a

mere consequence of the original case filed by private individuals is
mistaken. It is apt to point out that third party complaints are actions
independent and distinct from the original cases from which they
arise. As explained by the Supreme Court, such third party
complaints are allowed as procedural devices only and if it were not
for the Rules of Court, should be filed separately from the original
complaint.