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VOL. 233, JUNE 14, 1994 137

Associated Bank vs. Court of Appeals

*
G.R. No. 107918. June 14, 1994.

ASSOCIATED BANK, petitioner, vs. HON. COURT OF

APPEALS, HON. MARINA L. BUZON, as Presiding Judge
of RTC, Quezon City, MM, Br. 91, VISITACION SERRA
FLORES RTC, Quezon City, MM, Br. 91, MA. ASUNCION
FLORES, PHILIPPINE COMMERCIAL
INTERNATIONAL BANK, FAR EAST BANK & TRUST
CO., SECURITY BANK & TRUST CO. and CITYTRUST
BANKING CORPORATION, respondents.

Banks and Banking; Courts; As a consequence of

participation, a party cannot invoke the jurisdiction of the courts
over disputes and controversies which fall under the Philippine
Clearing House Corporation (PCHC) Rules and Regulations
without first going through the arbitration processes laid out by
the body.—Under the rules and regulations of the Philippine
Clearing House Corporation (PCHC), the mere act of participation
of the parties concerned in its operations in effect amounts to a
manifestation of agreement by the parties to abide by its rules
and regulations. As a consequence of such participation, a party
cannot invoke the jurisdiction of the courts over disputes and
controversies which fall under the PCHC Rules and Regulations
without first going through the arbitration processes laid out by
the body. Since claims relating to the regularity of checks cleared
by banking institutions are among those claims which should first
be submitted for resolution by the PCHC’s Arbitration
Committee, petitioner Associated Bank, having voluntarily bound
itself to abide by such rules and regulations, is estopped from
seeking relief from the Regional Trial Court on the coattails of a
private claim and in the guise of a third party complaint without
first having obtained a decision adverse to its claim from the said
body. It cannot bypass the arbitration process on the basis of its
averment that its third party complaint is inextricably linked to
the original complaint in the Regional Trial Court.

Same; Same; Appeals; While the PCHC Rules and

Regulations allow appeal to the Regional Trial Courts only on
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questions of law, this does not preclude our lower courts from
dealing with questions of fact already decided by the PCHC
arbitration when warranted and appropriate.—Pursuant to its
function involving the clearing of checks and other clearing items,
the PCHC has adopted rules and regulations designed to provide
member banks with a procedure whereby disputes

_______________

* FIRST DIVISION.

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138 SUPREME COURT REPORTS ANNOTATED

Associated Bank vs. Court of Appeals

involving the clearance of checks and other negotiable

instruments undergo a process of arbitration prior to submission
to the courts below. This procedure not only ensures a uniformity
of rulings relating to factual disputes involving checks and other
negotiable instruments but also provides a mechanism for settling
minor disputes among participating and member banks which
would otherwise go directly to the trial courts. While the PCHC
Rules and Regulations allow appeal to the Regional Trial Courts
only on questions of law, this does not preclude our lower courts
from dealing with questions of fact already decided by the PCHC
arbitration when warranted and appropriate.

Same; Same; Same; A participant subject to the Clearing

House Rules and Regulations of the PCHC may go on appeal to
any of the Regional Trial Courts in the National Capital Region
where the head office of any of the parties is located only after a
decision or award has been rendered by the arbitration committee
or arbitrator on questions of law.—Not only do the parties
manifest by mere participation their consent to these rules, but
such participation is deemed (their) written and subscribed
consent to the binding effect of arbitration agreements under the
PCHC rules. Moreover, a participant subject to the Clearing
House Rules and Regulations of the PCHC may go on appeal to
any of the Regional Trial Courts in the National Capital Region
where the head office of any of the parties is located only after a
decision or award has been rendered by the arbitration committee
or arbitrator on questions of law.

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Same; Same; Same; Petitioner Associated Bank by its

voluntary participation and its consent to the arbitration rules
cannot go directly to the Regional Trial Court when it finds it
convenient to do so.—Clearly therefore, petitioner Associated
Bank, by its voluntary participation and its consent to the
arbitration rules cannot go directly to the Regional Trial Court
when it finds it convenient to do so. The jurisdiction of the PCHC
under the rules and regulations is clear, undeniable and is
particularly applicable to all the parties in the third party
complaint under their obligation to first seek redress of their
disputes and grievances with the PCHC before going to the trial
court.

Civil Procedure; Third Party Complaints; Third party com

plaint is a mere procedural device which under the Rules of Court
is allowed only with the court’s permission.—Finally, the
contention that the third party complaint should not have been
dismissed for being a necessary and inseparable offshoot of the
main case over which the court a quo had already exercised
jurisdiction misses the fundamental point about such pleading. A
third party complaint is a mere procedural device which under
the Rules of Court is allowed only with the court’s

139

VOL. 233, JUNE 14, 1994 139

Associated Bank vs. Court of Appeals

permission. It is an action “actually independent of, separate and

distinct from the plaintiffs’ complaint” (s)uch that, were it not for
the Rules of Court, it would be necessary to file the action
separately from the original complaint by the defendant against
the third party.

PETITION for review on certiorari of a decision of the

Court of Appeals.

The facts are stated in the opinion of the Court.

          Soluta, Leonidas, Marifosque, Balce, Santiago &
Aguila Law Office for petitioner.
     Recto Law Office for respondent Flores.
     Balgos and Perez Law Office for respondent PCIB.
          Dumaraos, Oracion, Panganiban & Associates for
respondent FEBTC.
     Cauton, Banares, Carpio, Ishiwata and Associates for
respondent SBTC.
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     Gonzaga, Soneja and Gale Law Offices for respondent

Citytrust.

KAPUNAN, J.:

This is a petition for review on certiorari seeking the

reversal of the decision of the Court of Appeals on
November 18, 1992 affirming in toto the Order of the
Regional Trial Court of Quezon City, Branch 91 dismissing
the petitioner’s third-party complaint against private
respondent banks for lack of jurisdiction.
The facts of the case, as found by both the trial court and
the Court of Appeals are undisputed:

“In a complaint for Violation

1
of the Negotiable Instrument Law
and Damages, plaintiffs seek the 2
recovery of the amount of
P900,913.60 which defendant bank charged against their current
account by virtue of the sixteen (16) checks drawn by them
despite the apparent alterations therein with respect to the name
of the payee, that is, the name

_______________

1 Herein private respondents Visitacion Serra Flores and Ma. Asuncion Flores.
2 Associated Bank.

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140 SUPREME COURT REPORTS ANNOTATED

Associated Bank vs. Court of Appeals

Filipinas Shell was erased and substituted with Ever Trading and
DBL Trading by their supervisor Jeremias Cabrera, without their
knowledge and consent.
“Answering the complaint, defendant bank claimed that the
subject checks appeared to have been regularly issued and free
from any irregularity which would excite or arouse any suspicion
or warrant their dishonor when the same were negotiated and
honored by it; that it observed and exercised the required
diligence, care and the prescribed standard verification
procedures before finally accepting and honoring the subject
checks and that the proximate cause of plaintiffs’ loss, if any, was
their own laxity, negligence and lack of control, due care and
diligence in the conduct of their business affairs.
“With leave of court, defendant bank filed a Third-Party
Complaint against Philippine Commercial International Bank,
Far East Bank & Trust Company, Security Bank and Trust
Company and Citytrust Banking Corporation for reimbursement,
contribution, indemnity from said third-party defendants for

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being the collecting banks of the subject checks and by virtue of

their bank guarantee for all checks sent for clearing to the
Philippine Clearing House Corporation (PCHC), as provided for in
Section 17, PCHC Clearing House Rules and Regulations.
“In its Answer to the Third-Party Complaint, Citytrust
Banking Corporation averred that the subject checks appeared to
be complete and regular on their face with no indication that an
original payee’s name was erased and superimposed with another;
that plaintiffs’ fault and negligence in failing to examine their
monthly bank statements, together with the returned checks and
their own check stubs, put them under estoppel and cannot
recover the proceeds of the checks against it, an innocent third-
party, and plaintiff must suffer the loss as their negligence was
the proximate cause thereof; and that third party plaintiff is
barred from recovering from it based on the provisions of Sections
20 and 21 of the Philippine Clearing Rules and Regulations.
“Philippine Commercial International Bank alleged that the
subject check was complete and regular on its face and was paid
by it only upon presentment to the drawee bank for clearing who,
upon examination thereof, found the same to be complete and
regular on its face; that it was only after said check was cleared
by third-party plaintiff for payment that it allowed the payee to
withdraw the proceeds of the check from its account; that the
cause of action of the third-party plaintiff is barred by estoppel
and/or laches for its failure to return the check to it within the
period provided for under Clearing House Rules and Regulations;
that this Court has no jurisdiction over the suit as it and third-
party plaintiff are members of the Philippine Clearing House

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VOL. 233, JUNE 14, 1994 141

Associated Bank vs. Court of Appeals

and bound by the Rules and Regulations thereof providing for

arbitration.
“A Motion To Dismiss was filed by Security Bank and Trust
Company on the grounds that third-party plaintiff failed to resort
to arbitration as provided for in Section 36 of the Clearing House
Rules and Regulations of the Philippine Clearing House
Corporation, and that it was released from any liability with the
acceptance by third-party plaintiff of the subject check.
“The record does not show of any Answer to the Third-Party
Complaint having been filed by Far East Bank & Trust Company,
although a ‘Reply To FEBTC Answer’ was filed by third-party
plaintiff.
“On the other hand, third-party plaintiff maintains that this
Court has jurisdiction over the suit as the provisions of the

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Clearing House Rules and Regulations are applicable only if the

suit or action is between participating member banks, whereas
the plaintiffs are private persons and the third-party complaint
between participating member banks is only 3
a consequence of the
original action initiated by the plaintiffs.”

The trial court dismissed the third-party complaint for lack

of jurisdiction citing Section 36 of the Clearing House Rules
and Regulations of the PCHC providing for settlement of
disputes and controversies involving any check or item
cleared through the body with the PCHC. It ruled—citing
the Arbitration Rules of Procedure—that the decision or
award of the PCHC through its arbitration
committee/arbitrator is appealable only on questions of law
to any of the Regional Trial Courts in the National Capital
Region 4where the head office of any of the parties is
located.
On the plaintiffs’ contention that jurisdiction vests with
the court only if the suit or action is between participating
member banks without the involvement of private parties
the trial court held:

“The third-party complaint concerning a dispute or controversy

among clearing participants involving the subject checks cleared
through PCHC is actually independent of, separate and distinct
from the plaintiff’s complaint. x x x
xxx

_______________

3 Rollo, pp. 28-30.

4 CA Rollo, pp. 66-68.

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142 SUPREME COURT REPORTS ANNOTATED

Associated Bank vs. Court of Appeals

“As the plaintiffs are not parties to the third party complaint, the
provisions of the clearing house rules and regulations on
arbitration are, therefore, applicable to Third-Party plaintiff and
third party defendant. Consequently
5
this court has no jurisdiction
over the third party complaint.”

After the trial6 court denied plaintiffs Motion for

Reconsideration, petitioner appealed to the Court of
Appeals which promulgated the challenged decision on
November 18, 1992 dismissing the petition for lack of
merit.
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Undaunted, petitioner is now before this Court seeking a

review of respondent court’s decision on a lone assignment
of error:

“RESPONDENT COURT OF APPEALS ERRED IN HOLDING

THAT PETITIONER DRAWEE BANK’S THIRD PARTY
COMPLAINT AGAINST PRIVATE RESPONDENT
COLLECTING BANKS FALL WITHIN THE JURISDICTION OF
THE PCHC AND NOT THE REGULAR COURT.”

We find no merit in the petition.

The Clearing House Rules and Regulations on
Arbitration of the Philippine Clearing House Corporation
are clearly applicable to petitioner and private
respondents, third party plaintiff and defendants,
respectively, in the court below. Petitioner Associated
Bank’s third party complaint in the trial court was one for
reimbursement, contribution and indemnity against the
Philip-pine Commercial and Industrial Bank (PCIB), the
Far East Bank and Trust, Co. (FEBTC), Security Bank and
Trust Co. (SBTC), and the CityTrust Banking Corporation
(CTBC), in connection with petitioner’s having honored
sixteen checks which said respondent banks supposedly
endorsed to the former for collection in 1989. Under the
rules and regulations of the Philippine Clearing House
Corporation (PCHC), the mere act of participation of the
parties concerned in its operations in effect amounts to a
manifestation of agreement by the parties to abide by its
rules

_______________

5 Ibid., p. 76.
6 Ibid., Ibid.

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Associated Bank vs. Court of Appeals

7
and regulations. As a consequence of such participation, a
party cannot invoke the jurisdiction of the courts over
disputes and controversies which fall under the PCHC
Rules and Regulations without first going through the
arbitration processes laid out by the body. Since claims
relating to the regularity of checks cleared by banking
institutions are among those claims which should first be
submitted for resolution by the PCHC’s Arbitration

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Committee, petitioner Associated Bank, having voluntarily

bound itself to abide by such rules and regulations, is
estopped from seeking relief from the Regional Trial Court
on the coattails of a private claim and in the guise of a
third party complaint without first having obtained a
decision adverse to its claim from the said body. It cannot
bypass the arbitration process on the basis of its averment
that its third party complaint is inextricably linked to the
original complaint in the Regional Trial Court.
Under its Articles of Incorporation, the PCHC provides
“an effective, convenient, efficient, economical and relevant
exchange and facilitate service limited to check processing
and sorting by way of assisting member banks, entities in
clearing checks and other clearing items as defined and
existing in future Central Bank of the Philippines
Circulars, memoranda, circular letters rules and
regulations and policies in pursuance of Section 107 of RA
265.” Pursuant to its function involving the clearing of
checks and other clearing items, the PCHC has adopted
rules and regulations designed to provide member banks
with a procedure whereby disputes involving the clearance
of checks and other negotiable instruments undergo a
process of arbitration prior to submission to the courts
below. This procedure not only ensures a uniformity of
rulings relating to factual disputes involving checks and
other negotiable instruments but also provides a
mechanism for settling minor disputes among participating
and member banks which would otherwise go directly to
the trial courts. While the PCHC Rules and Regulations
allow appeal to the Regional Trial Courts only on questions
of law, this does not preclude our lower courts from dealing
with questions of fact already decided by the PCHC
arbitration when warranted and appropriate.

_______________

7 PCHC Rules and Regulations, Sec. 3 (hereinafter cited as Rules).

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Associated Bank vs. Court of Appeals

In Banco de Oro Savings

8
and Mortgage Banks vs. Equitable
Banking Corporation this Court had the occasion to rule
on the validity of these rules as well as the jurisdiction of
the PCHC as a forum for resolving disputes and
controversies involving checks and other clearing items
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when it held that “the participation of two banks . . . in the

Clearing Operations of the PCHC9 (was) a manifestation of
its submission to its jurisdiction.”
The applicable PCHC provisions on the question of
jurisdiction provide:

“Sec. 3—AGREEMENT TO THESE RULES

“It is the general agreement and understanding, that any
participant in the PCHC MICR clearing operations, by the mere
act of participation, thereby manifests its agreement to these
Rules and Regulations, and its subsequent amendments.
xxx
“Sec. 36—ARBITRATION
“36.1 Any dispute or controversy between two or more clearing
participants involving any check/item cleared thru PCHC shall be
submitted to the Arbitration Committee, upon written complaint
of any involved participant by filing the same with the PCHC
serving the same upon the other party or parties, who shall
within fifteen (15) days after receipt thereof, file with the
Arbitration Committee its written answer to such written
complaint and also within the same period serve the same upon
the complaining participant. This period of fifteen (15) days may
be extended by the Committee not more than once for another
period of fifteen (15) days, but upon agreement in writing of the
complaining party, said extension may be for such period as the
latter may agree to.”
Section 36.6 is even more emphatic:
“36.6 The fact that a bank participates in the clearing
operations of PCHC shall be deemed its written and subscribed
consent to the binding effect of this arbitration agreement as if it
had done so in accordance with Section 4 of the Republic Act No.
876 otherwise known as the Arbitration Law.”

_______________

8 157 SCRA 188 (1988).

9 Ibid., p. 196.

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Associated Bank vs. Court of Appeals

Thus, not only do the parties manifest by mere

participation their consent to these rules, but such
participation is deemed (their) written and subscribed
consent to the binding effect of arbitration agreements
under the PCHC rules. Moreover, a participant subject to
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the Clearing House Rules and Regulations of the PCHC

may go on appeal to any of the Regional Trial Courts in the
National Capital Region where the head office of any of the
parties is located only after a decision or award has been
rendered by the10 arbitration committee or arbitrator on
questions of law.
Clearly therefore, petitioner Associated Bank, by its
voluntary participation and its consent to the arbitration
rules cannot go directly to the Regional Trial Court when it
finds it convenient to do so. The jurisdiction of the PCHC
under the rules and regulations is clear, undeniable and is
particularly applicable to all the parties in the third party
complaint under their obligation to first seek redress of
their disputes and grievances with the PCHC before going
to the trial court.
Finally, the contention that the third party complaint
should not have been dismissed for being a necessary and
inseparable offshoot of the main case over which the court
a quo had already exercised jurisdiction misses the
fundamental point about such pleading. A third party
complaint is a mere procedural device which under the
Rules of Court is allowed only with the court’s permission.
It is an action “actually independent of, separate and
distinct from the plaintiffs’ complaint” (s)uch that, were it
not for the Rules of Court, it would be necessary to file the
action separately from the original11
complaint by the
defendant against the third party.
IN VIEW OF THE FOREGOING, the petition is
DENIED for lack of merit. With costs against petitioner.
SO ORDERED.

          Cruz (Chairman), Davide, Jr. and Bellosillo, JJ.,

concur.
     Quiason, J., No part, being former counsel of one of
respon-

_______________

10 Rules, Sec. 13.

11 Allied Banking Corporation vs. Court of Appeals, 178 SCRA 526
(1989).

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Krohn vs. Court of Appeals

dent banks.
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Petition denied.

Note.—Under Section 17 of Rule 39, Rules of Court, a

third person who claims property levied upon to implement
a judgment may vindicate such claim by action
(Consolidated Dairy Products vs. Court of Appeals, 212
SCRA 810).

——o0o——

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