Checks as Evidence of Personal Liability Despite Corporate Issuance

The Supreme Court recently clarified an important principle in Philippine civil law: the issuance of corporate checks does not automatically shield a corporate officer from personal liability. In Ubas v. Chan (G.R. No. 215910, February 6, 2017), the Court ruled that checks signed by an individual—even if drawn against a corporate account—can serve as evidence of that individual's personal obligation when there is privity of contract between the parties.

The Facts of the Case

Manuel Ubas, Sr. filed a complaint for sum of money against Wilson Chan, who was doing business under the name "UNIMASTER." Ubas alleged that Chan personally purchased construction materials worth P1,500,000.00 for the Macagtas Dam project. As payment, Chan issued three checks of P500,000.00 each, payable to "CASH." When Ubas presented the checks for encashment, they were dishonored due to a stop payment order.

Chan defended himself by claiming that the checks belonged to Unimasters Conglomeration, Inc., a duly registered corporation with a separate juridical personality. He argued that the checks were issued to a project engineer for replenishing a revolving fund, not to Ubas, and that no contract ever existed between him and Ubas personally.

The Legal Issue

The central question was whether the Court of Appeals erred in dismissing Ubas's complaint for lack of cause of action. The CA had ruled that Chan was not the proper party defendant because the checks were drawn from a corporate account, making Unimasters an indispensable party that should have been impleaded.

The Supreme Court's Ruling

The Supreme Court reversed the CA and reinstated the trial court's decision in favor of Ubas. The Court held that the existence of a cause of action is determined by the allegations in the complaint, and Ubas's complaint clearly alleged a personal contract with Chan.

Presumption of Consideration. Under Section 24 of the Negotiable Instruments Law (Act No. 2031), every negotiable instrument is deemed prima facie to have been issued for valuable consideration. Since Chan admitted signing the checks, the presumption arose that they were issued for value. Chan failed to overcome this presumption.

The "Lost Checks" Defense. The Court found it contrary to human nature and experience that Ubas would send a demand letter detailing the checks' serial numbers if he had unlawfully obtained them. Notably, Chan did not present the project engineer who allegedly lost the checks, and neither Chan nor Unimasters filed any action against Ubas to recover the supposedly stolen instruments worth P1,500,000.00.

Corporate Checks Do Not Alter the Obligation. The Court emphasized that the manner of payment does not alter the nature of the obligation. The source of the obligation stems from the contract between the parties, which was perfected when they agreed on the purchase of materials on credit. Even if corporate checks were issued for payment, the juridical tie between the parties was already established at the contract's perfection stage.

Practical Takeaways

• A corporate officer who signs checks—even corporate checks—may be held personally liable if there is evidence of a direct contractual relationship with the payee.
• The presumption of consideration under Section 24 of the Negotiable Instruments Law applies to any person whose signature appears on a negotiable instrument.
• The defense that checks were "lost" or issued for another purpose must be supported by credible evidence; failure to present key witnesses can be fatal to the defense.
• A demand letter personally addressed to an individual, combined with that person's admission of signing the checks, can establish privity of contract.
• The doctrine of piercing the corporate veil need not be invoked when the claim is based on a personal contract with the corporate officer, not on the corporation's liability.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.