NEGO

SEC 184- 198

7.

BPI

v.

CA

1.
Moran
v.
CA
-
Lex
2. PNB v. Quimpo - Joben
3. Rep v. Equitable Banking Corp - Jed
4. HSBC v. Peoples Bank - Jech
5. Metropolitan Bank v. First National -
6. Republic Bank v. CA- Dondon pending

Georgina
pending
8. Phil Bank v. CA (read dissent) - Angel
9. Manila Lighter Transpo v. CA
10.
Westmont
v.
Ong
-
Norby
11. Assocaited Bank v. CA CJ
12.
Tan
v.
CA
-
Mariana
13. Allied Banking v. Lim - Keith
14.
Far
East
v.
Gold
-
Lex
15. Security Bank v. RCBC Joben
16. Bank of America v. Phil Racing Jed
17. Bank of America v. Asscoiaeed Citizens Bank

1. SPOUSES MORAN V. CA and CITY TRUST BANKING CORPORATION LEX

Emergency Recit:
Spouses Moran issued checks in favor of Petrophil for their fuel purchases. To effect this, they gave written
authority to Citytrust to automatically transfer funds from their Savings Account to their Current Account at
any time whenever the funds in their current account were insufficient to meet withdrawals from said current
account. Moran was informed by his wife that Petrophil refused to deliver their orders on a credit basis
because the two checks they had previously issued were dishonored upon presentment for payment. The bank
dishonored the checks due to "insufficiency of funds." Petitioners filed a complaint against the bank. SC: On
December 13, when petitioners' checks were dishonored due to insufficiency of funds, the available balance of
Savings Account 1, which was the subject of the PAT agreement, was not enough to cover either of the two
checks. It was only on December 15 that the necessary funds were deposited, which unfortunately was too
late to prevent the dishonor of the checks. Petitioner had no reason to complain, for they alone were at fault.
A drawer must remember his responsibilities every time he issues a check. He must personally keep track of
his available balance in the bank and not rely on the bank to notify him of the necessity to fund certain check
she previously issued.
G.R. No. 105836 March 7, 1994
REGALADO, J.:
I. FACTS

Spouses Moran (petitioners) are the owners of the Wack-Wack Petron gasoline station. They regularly
purchased bulk fuel and other related products from Petrophil Corporation on cash on delivery (COD)
basis.

Petitioners maintained three joint accounts, namely one current account and two savings accounts,
with the Shaw Boulevard branch of Citytrust Banking Corporation. As a special privilege to the
Morans, the bank allowed them to maintain a zero balance in their current account. Petitioners gave
written authority to Citytrust to automatically transfer funds from their Savings Account to their

NEGO SEC 184- 198

Current Account at any time whenever the funds in their current account were insufficient to meet

withdrawals from said current account. This is known as pre-authorized transfer (PAT) agreement.
4

Petitoners, through Librada Moran, drew a check for P50,576.00 payable to Petrophil Corporation.
The next day, petitioners, again through Librada Moran, issued another check in the amount of
5
P56,090.00 in favor of the same corporation. The total sum of the two checks was P106,666.00

Petrophil Corporation deposited the two checks to its account with the Pandacan branch of the
Philippine National Bank (PNB), the collecting bank. In turn, PNB, Pandacan branch presented them
for clearing with the Philippine Clearing House Corporation in the afternoon of the same day. The
records show that on December 14, 1983, Current Account had a zero balance, while Savings Account
6
1 (covered by the PAT) had an available balance of P26,104.30 and Savings Account 2 had an
7
available balance of P43,268.39.

Moran deposited in their Savings Account 1 the amounts of P10,874.58 and P6,754.25, and he
9
likewise deposited in their Savings Account 2 the amounts of P5,900.00, P35,100.00 and 30.00. The
amount of P40,000.00 was then transferred by him from Saving Account 1 to their current account by
means of a pro forma withdrawal form (a debit memorandum), which was provided by the bank,
authorizing the latter to make the necessary transfer. At the same time, the amount of P66,666.00
was transferred from Savings Account No. 1 to the same current account through the pre-authorized
10
transfer (PAT) agreement.

Moran was informed by his wife that Petrophil refused to deliver their orders on a credit basis
because the two checks they had previously issued were dishonored upon presentment for payment.
11
The bank dishonored the checks due to "insufficiency of funds." The non-delivery of gasoline forced
petitioners to temporarily stop business operations, allegedly causing them to suffer loss of earnings.
In addition, Petrophil cancelled their credit accommodation, forcing them to pay for their purchases
in cash.

Petitioners, wrote Citytrust claiming that the bank's dishonor of the checks caused them besmirched
business and personal reputation, shame and anxiety, hence they were contemplating the filing of the
necessary legal actions. chanrobles virtual law library

Petitioners filed a complaint for damages with RTC

RTC: Dismissed complaint

CA: affirming the decision of the trial court.

Issue
Whether or not petitioners had sufficient funds in their accounts when the bank dishonored the checks in
question.
Held:
WHEREFORE, finding no reversible error in the judgment appealed from, the same is hereby AFFIRMED, with
costs against petitioners.

Ruled in favor of the Bank

NEGO SEC 184- 198

Ratio:
A check is a bill of exchange drawn on a bank payable on demand.

The relationship between the bank and the depositor is that of a debtor and creditor. By virtue of the
contract of deposit between the banker and its depositor, the banker agrees to pay checks drawn by
the depositor provided that said depositor has money in the hands of the bank.

Hence, where the bank possesses funds of a depositor, it is bound to honor his checks to the extent of
the amount of his deposits. The failure of a bank to pay the check of a merchant or a trader, when the
deposit is sufficient, entitles the drawer to substantial damages without any proof of actual damages.

When PNB, Pandacan branch, presented the checks for collection, the available balance for Savings
Account No. 1 was P26,104.30 while Current Account had a zero balance. Moran learned that
P66,666.00 from Saving Account 1 was transferred to their current account. Another P40,000.00 was
transferred from Saving Accounts No. 2 to the current account. Considering that the transfers were by
then sufficient to cover the two checks, it is asserted by petitioners that such fact should have
prevented the dishonor of the checks. It appears, however, that it was not so..

On December 13, when petitioners' checks were dishonored due to insufficiency of funds, the
available balance of Savings Account 1, which was the subject of the PAT agreement, was not enough
to cover either of the two checks. When PNB, Pandacan branch presented the checks for collection,
the available balance for Savings Account 1, to repeat, was only P26,104.30 while Current Account
had no available balance. It was only on December 15 that the necessary funds were deposited, which
unfortunately was too late to prevent the dishonor of the checks.

Petitioner had no reason to complain, for they alone were at fault. A drawer must remember his
responsibilities every time he issues a check. He must personally keep track of his available balance in
the bank and not rely on the bank to notify him of the necessity to fund certain check she previously
issued. A check, as distinguished from an ordinary bill of exchange, is supposed to be drawn against a
previous deposit of funds for it is ordinarily intended for immediately payment.

Whitman vs. First National Bank a bank performs its full duty where, upon the receipt of a check
drawn against an account in which there are insufficient funds to pay it in full, it endeavors to induce
the drawer to make good his account so that the check can be paid, and failing in this, it protests the
check on the following morning and notifies its correspondent bank by the telegraph of the protest. It
cannot, therefore, be held liable to the payee and holder of the check for not protesting it upon the
day when it was received. In fact, the court added that the bank did more that it was required to do
by making an effort to induce the drawer to deposit sufficient money to make the check good, and by
notifying its correspondent of the dishonor of the check by telegram.

In the early morning of every business day, prior to banking hours, the various branches of Citytrust
would receive a computer printout called the "rejected transactions" report from the head office. The
report contains, among others, a listing of "checks to be funded." When Citytrust, Shaw Boulevard
branch, received said report in the early morning of December 15, 1983, the two checks involved
were included in the "checks to be funded." That report was used by the bank as its basis in
dishonoring the two checks in question. Petitioner contends that the bank erred when it did so
because on previous occasions, the report was merely used by the bank as a basis for determining
whether or not it was necessary to notify them of the need to deposit certain amounts in their
accounts.

NEGO SEC 184- 198

Said argument does not persuade. If ever petitioners on previous occasions were given notices every
time a check was presented for clearing and payment and there were no adequate funds in their
accounts, these were, at most, mere accommodations on the part of respondent bank. It was not a
requirement or a general banking practice, hence non-compliance therewith could not lay the bank
open to blame or rebuke.

Legally, the bank had all the right to dishonor the checks because there were no sufficient funds to
speak of in the first place. If the demand is by check, a drawer must have to his credit enough to cover
the demand. If his credit with the bank is less than the amount on the face of the check, the bank may
32
lawfully refuse payment.

On the other hand, assuming arguendo that Savings Account 2, which is not covered by a PAT
agreement, had enough amount deposited to cover both checks (which is not so in this case), the
bank still had no obligation to honor said checks as there was then no authority given to it to make
the transfer of funds.

Although we take judicial notice of the fact that there is a fiduciary relationship between a bank and
its depositors, as well as the extent of diligence expected of it in handling the accounts entrusted to
37
its care, the bank may not be held responsible for such damages in the absence of fraud, bad faith,
38
malice, or wanton attitude.

2. PNB V. QUIMPO JOBEN
EMERGENCY RECIT:
Gozon was a depositor of the PNB (Caloocan City branch). Santos, Gozons friend, took a check from the
latters checkbook which was left in the car, filled it up for the amount of P5,000, forged Gozons signature,
and encashed it. Gozon learned about the transaction upon receipt of the banks statement of account, and
requested the bank to recredit the amount to his account. The bank refused. Hence, the present action. Who
shall bear the loss resulting from the forged check. The prime duty of a bank is to ascertain the genuineness of
the signature of the drawer or the depositor on the check being encashed. It is expected to use reasonable
business prudence in accepting and cashing a check being encashed or presented to it. Payment in neglect of
duty places upon him the result of such negligence. Gozons act in leaving his checkbook in the car, where his
trusted friend remained in, cannot be considered negligence sufficient to excuse the bank from its own
negligence. The bank bears the loss.

FACTS:
Francisco Gozon, who was a depositor of the Caloocan City Branch of the Philippine National Bank, went to the
bank in his car accompanied by his friend Ernesto Santos whom he left in the car while he transacted business
in the bank. When Santos saw that Gozon left his check book he took a check therefrom, filled it up for the
amount of P5,000.00, forged the signature of Gozon, and thereafter he encashed the check in the bank on the
same day.

Upon receipt of the statement of account from the bank, Gozon asked that the said amount of P5,000.00
should be returned to his account as his signature on the check was forged but the bank refused.

NEGO SEC 184- 198

Hence Gozon filed the complaint for recovery of the amount of P5,000.00, plus interest, damages, attorney's
fees and costs against the bank in CFI Rizal. (Decided in favor of Gozon)

ISSUE:
Who shall bear the loss resulting from the forged check. - BANK

RATIO:
The prime duty of a bank is to ascertain the genuineness of the signature of the drawer or the depositor on the
check being encashed. It is expected to use reasonable business prudence in accepting and cashing a check
presented to it.

The trial court found that a comparison of the signature on the forged check and the sample signatures of
private respondent show marked differences as the graceful lines in the sample signature which is completely
different from those of the signature on the forged check.

Obviously, the bank was negligent in encashing said forged check without carefully examining the signature
which shows marked variation from the genuine signature of Gozon.

The act of plaintiff in leaving his checkbook in the car while he went out for a short while can not be
considered negligence sufficient to excuse the defendant bank from its own negligence.

WHEREFORE, the petition is DISMISSED for lack of merit with costs against petitioner.

3. REP V. EQUITABLE BANKING CORP JED
FACTS
-Consolidated case
(BPI Case)
-Jacinto Carranza asked the Corporacion de los Padres Dominicos to cash 24 treasury warrants from
which encashment his wife expected to earn some commission.

-The Corporacion accommodated Carranzas request since the latter was a trusted former
employee but subject to certain conditions
a) That the warrants be deposited with BPI;
b ) T h a t t h e a c t u a l p a y m e n t o f t h e v a l u e o f t h e warrants would be made only
after the same had been duly accepted and cleared by the Treasurer and the proceeds thereof
duly credited to the BPI account of the Corporacion.

-Said conditions were met and deposited with BPI who accepted the warrants subject to collection only and
with each warrant bearing the indorsement of the respective payee and that of the Corporacion.

-BPI presented the warrants for payment to the drawee (the Government) through the Clearing Office and
upon clearing, was paid by the Treasurer.

-BPI then credited the proceeds to the Corporacions account, which was then withdrawn by the
Corporacion.

- T h e T r e a s u r e r r e t u r n e d 3 o f t h e w a r r a n t s t o t h e Central Bank on the ground that those
were forged and t h e n d e m a n d e d t h a t t h e v a l u e o f s a i d w a r r a n t s b e charged against BPIs
account with the Clearing Office a n d c r e d i t e d b a c k t o t h e d e m a n d d e p o s i t o f t h e Treasury.

NEGO SEC 184- 198

-Eventually, all warrants were returned by the Treasury to the Central Bank for the same reason and
with the same demand.

- C e n t r a l B a n k t h e n r e f e r r e d t h e m a t t e r t o B P I f o r appropriate action but the latter opposed
the return of the warrants or to have their value charged against its account and requested, instead, to
the CB to return said warrants to the Treasurer.

(Equitable Case)
- 4 w a r r a n t s w e r e d e p o s i t e d w i t h E q u i t a b l e b y i t s
d e p o s i t o r s R o b e r t
W o n g ,
L u C h i u K a u a n d C h u n g Ching.

-Equitable
cleared
said warrants through the Clearing
Office and
then collected
the corresponding amounts from the Treasurer, and thereafter, credited those to the accounts
of the depositors.

-The Treasurer notified Equitable that said warrants were defective and demanded
reimbursement of said amounts, which the latter refused.

(Consolidation)
-By agreement of the parties, said cases were jointlyh e a r d .
( K a s i , B P I f i l e d a c o m p l a i n t a g a i n s t t h e Corporacion; Equitable
filed a similar complaint for whatever reimbursements it and BPI may be sentenced to give the Govt.)

ISSUE
WON said banks are liable? NO

HELD:
-The Treasury was the negligent one here since there was a 24 hour clearing rule, wherein
items that should be returned for whatever reason should be done so within 24 hours. This it failed
to do in these two cases. (Note: there is no mention of the NIL here because the28 warrants were not
negotiable);

-Negligence in clearing: The Auditor of the Treasury, whose signature was forged, exceeded his
authority to a pprove since each of the warrants involved were over 5k pesos.

-The irregularity of the warrants was a p p a r e n t o n t h e f a c e t h e r e o f f r o m t h e T r e a s u r y s
viewpoint yet the banks were not informed of any of the irregularity in them until after said
warrants were cleared and honored. Only then did the Treasury give notice of the forgeries.

-As was stated, all 28 warrants were cleared and paid by the Treasury, this, then, induced the banks to credit
the amounts to the respective depositors. Therefore, the loss of amounts was imputable to the acts and
omissions of t he Treasury so the banks should not and cannot be penalized.

-Treasury should bear the loss, citing PNB v Natl CityBank of NY, Where a loss, which must be borne by one
of two parties alike, innocent of forgery, can be traced to the neglect or fault of either, it is reasonable that it
would be borne by him, even if innocent of any intentional fraud, though whose means it has succeeded.

NEGO SEC 184- 198

-First State Bank & Trust v. First Natl Bank: Where a defendant bank, on presentation to it of a forged check
drawn on another bank, paid part of amount to presenter, drawee having had the check cleared through
the clearing house, with no notice of f o r g e r y g i v e n , s a i d b a n k c a n n o t b e h e l d l i a b l e
f o r amount so paid


4. HSBC V. PEOPLES BANK JECH
Emergency Recit:
PLDT drew a check on HSBC with the latter (HSBC) being the payee.
The check landed in the hands of a third person (CHANGC) who successfully substituted his
name as payee and deposited the check with the Peoples Bank.
Upon knowledge of this, reimbursement was sought from the Peoples Bank, but it refused.
HSBC filed an action against Peoples Bank.
SC: The entire case of HSBC relied on the indorsementnamely, a guarantee of all prior indorsements
made by Peoples Bank and since such an indorsement carries with it a concomitant guarantee of
genuineness, the Peoples Bank is liable to HSBC for alteration of the name of the payee.
o On the other hand, the Peoples Bank relied on the 24-hour regulation of the Central Bank
that required after a clearing, that all cleared items must be returned not later than 24
hours.
It should be noted that the checks were returned by HSBC 27 days later.
Dismissal of its complaint was called for.

Facts:
8 March 1965, PLDT drew a check on HSBC in favor of HSBC in the amount of 14,608.05
o The check was sent by mail to the payee-HSBC
The check fell into hands of Changco, who managed to erase the name of payee-HSBC and, instead,
typed in his own name on the check
Changco had a current account with PEOPLEs BANK and TRUST COMPANY
16 March 1965, Changco deposited the ALTERED CHECK in his name
PEOPLEs BANK presented the check for clearing, wherein PEOPLE made the following indorsement:
o For clearance, clearing office. All prior endorsements and/or lack of endorsements
guaranteed. Peoples Bank and Trust Company.
HSBC cleared the check and PEOPLEs credited Changco with the said 14K
31 March 1965, Changco closed his account with PEOPLEs BANK
12 April 1965, the check was returned to PLDT and it was only during that time when the alteration in
the name of the payee-HSBC was discovered
HSBC notified PEOPLEs of the alteration, but PEOPLEs refused to refund HSBC the sum of 14K, which
PEOPLE previously credited to Changco
HSBC brought suit against PEOPLEs
The CFI of Manila ruled in favor of PEOPLEs, considering as decisive the fact that HSBC allowed 27
days to elapse after clearing before notifying PEOPLEs as to such alteration, which is in violation of
the CENTRAL BANK regulation providing for a 24-hour period
HSBC appealed the case to the SC
HSBC sought to hold PEOPLEs liable on the basis of its indorsement (see above)
o In other words, the entire case of HSBC is based on the indorsement, namely, a guarantee of
all prior indorsements made by PEOPLEs, which, according to HSBC, carries with it a
concomitant guarantee of genuineness

NEGO SEC 184- 198

PEOPLEs, on the other hand, relied on the 24-hour regulation of the CENTRAL BANK, which
requires that after a clearing, all cleared items must be returned not later than 3:00PM of the
following business day
o In this case, HSBC only advised PEOPLEs as to the alteration 27 days after clearing
SC affirmed the decision of the CFI

Issue: Can HSBC hold PEOPLEs BANK liable, despite violating the 24-hour CENTRAL BANK Regulation? HALE
NO. HSBC NEGLIGENT.

Held:
As both HSBC and PEOPLEs are part of the Philippine Banking System and both are subject to the
regulations of the CENTRAL BANK, then both are bound by such regulations
o The SC has previously held that the 24-hour regulation of the Central Bank in clearing house
operations is valid and if banks feel the 24-hour period is unwise, they should make proper
representations with the Central Bank. But until they do so, they are bound by such 24-hour
period (Republic v. Equitable Banking Corporation, GR No. L-15894; January 30, 1964).
As regards the indorsement of PEOPLEs
o The indorsement, itself, is very clear when it begins with the words For clearance, clearing
office
Such an indorsement must be read together with the 24-hour regulation on clearing
House Operations of the Central Bank.
[IMPORTANT] Once that 24-hour period is over, the liability on such an
indorsement has ceased.
Section 4, Subsection (C) of Circular 9 of the CB dated 17 February 1949, provides:
o Items which should be returned for any reason whatsoever shall be returned directly to the
bank, institution or entity from which the item was received. For this purpose, the Receipt
for Returned Checks (Cash Form No. 9) should be used. The original and duplicate copies of
said Receipt shall be given to the bank, institution or entity which returned the items and the
triplicate copy should be retained by the bank, institution or entity whose demand is being
returned. At the following clearing, the original of the Receipt for Returned Checks shall be
presented through the Clearing Office as a demand against the bank, institution or entity
whose item has been returned. Nothing in this section shall prevent the returned items from
being settled by direct reimbursement to the bank, institution or entity returning the items.
o [IMPORTANT] All items cleared at 11:00 oclock a.m. shall be returned not later than 2:00
oclock p.m. on the same day and all items cleared at 3:00 oclock p.m. shall be returned
not later than 8:30 a.m. of the following business day, except for items cleared on Saturday
which may be returned not later than 8:30 of the following day.
It is a settled rule that a person who presents for payment checks guarantees the genuineness of
the check, and the drawee bank need concern itself with nothing but (1) the genuineness of the

signature and (2) the state of the account with it of the drawee.
o Thus, whatever remedy HSBC has would lie not against PEOPLEs but as against the party
responsible for changing the name of the payee-HSBC Changco
o HSBCs failure to call the attention of PEOPLEs as to such alteration until after the lapse of
27 days would, in the light of the above Central Bank circular, negate whatever right it might
have had against PEOPLEs.


5. METROPOLITAN BANK and TRUST COMPANY V. FIRST NATIONALCITY BANK AND CA MAITI

NEGO SEC 184- 198

METROPOLITAN BANK and TRUST COMPANY, petitioner, vs. THE FIRST NATIONAL CITY BANK and THE
COURT OF APPEALS, respondents.

ER:
Joaquin Cunanan & Company (Company) drew a check worth 50k, payable to cash, drawn against
First National Bank (FNCB)
Sales deposited the check with Metro Bank
Before that, Sales opened an account with Metro Bank and deposited P500
Metro Bank sent the check for clearing with a stamp on the back saying: Metropolitan Bank and
Trust Company Cleared (illegible) office All prior endorsements and/or Lack of endorsements
Guaranteed.
Check was cleared the same day
FNCB paid Metro Bank and Sales was credited with 50k
Sales made a series of withdrawals which eventually led to withdrawing everything in the account
9 days later, FNCB notified Metro Bank that the check was altered
from P50 to P50k
from Manila Polo Club as payee to Cash
FNCB sought reimbursement from Metro Bank. Latter refused.
RTC: Metro Bank should reimburse FNCB.
CA affirmed
WON Metro Bank is liable for the payment of the altered check?
NO. Metro Bank should not be held liable. FNCB's remedy should be against the party responsible for
the alteration. The 24-hour clearing house regulation should be applied to both parties as they are
both under the regulations of the Central Bank. There is an absence of liability of collecting bank for
failure of drawee bank to return an alleged altered check to the collecting bank within the 24-hour
clearing house period after receipt of check from the Central Bank clearing house. FNCB only returned
the check 9 days after it was sent for clearing. Also, precaution of Metro Bank by verifying from FNCB
the regularity and genuineness of the check deposit precludes its liability of on the altered check.

Facts:
Joaquin Cunanan & Company (Company) drew a check worth 50k, payable to cash, drawn against
First National Bank (FNCB)
Salvador Sales deposited check with Metropolitan Bank and Trust Company (Metro Bank) earlier that
day, Sales opened a current account with Metro Bank depositing P500.00 in cash
Metro Bank immediately sent the cash check to the Clearing House of the Central Bank with the
following words stamped at the back of the check:

Metropolitan Bank and Trust Company Cleared (illegible) office All prior endorsements and/or
Lack of endorsements Guaranteed.
The check was cleared the same day.
FNCB paid Metro Bank through clearing the amount of P50,000.00, and Sales was credited with the
said amount in his deposit with Metro Bank.
Sales' first withdrawal: 480.00
after 2 days, withdrew 32,100.00
after 3 days from withdrawing the prior amount, he withdrew the balance: 17,920.00 and closed
his account
9 days later, FNCB returned cancelled the check to drawer Joaquin Cunanan & Company
That same day, Company notified FNCB that the check was altered. Actual amount was P50 but was

NEGO SEC 184- 198

raised to 50k and payee Manila Polo Club was changed to CASH
Same day, FNCB notified Metro Bank by phone and sent a letter confirming the same which was
received by the latter the following day
Subsequently, FNCB wrote Metro Bank asking for reimbursement of the 50k. Metro Bank did not
oblige. FNCB reiterated its request. Metro Bank was adamant in its refusal.
FNCB filed suit for recovery of the amount
RTC: ordered Metro Bank to reimburse FNCB 50k with legal rate of interest.
Metro Bank appealed to CA. CA affirmed RTC
Hence this petition.

Issue:

WON Metro Bank is liable for the payment of the altered check? NO.

Ratio:

The transaction occurred during the effectivity of Central Bank Circular No. 9
Section 4. Clearing Procedures.
Items which should be returned for any reason whatsoever shall be delivered to and received
through the clearing Office in the special red envelopes and shall be considered and accounted as
debits to the banks to which the items are returned. Nothing in this section shall prevent the
returned items from being settled by reimbursement to the bank, institution or entity returning
the items. All items cleared on a particular clearing shall be returned not later than 3:30 P.M. on
the following business day.

The facts of this case fall within said Circular. Under the procedure prescribed, the drawee bank
receiving the check for clearing from the Central Bank Clearing House must return the check to the
collecting bank within the 24-hour period if the check is defective for any reason.
Metro Bank: invokes this 24-hour regulation of the Central Bank as its defense.
FNCB: invokes the guarantee of all previous indorsements made by Metro Bank which guarantee had
allegedly misled FNCB into believing that the check in question was regular and the payees
indorsements genuine;
as well as on the general rule of law founded on equity and justice that a drawee or pay or bank
which in good faith pays the amount of materially altered check to the holder thereof is entitled
to recover its payment from the said holder, even if he be an innocent holder.
The validity of the 24-hour clearing house regulation: (Republic v Equitable Banking Corporation)
since both parties are part of our banking system, and both are subject to the regulations of the
Central Bank, they are bound by the 24hour clearing house rule of the Central Bank.
In this case, the check was not returned to Metro Bank in accordance with the 24- hour clearing
house period, but was cleared by FNCB.
Failure of FNCB, therefore, to call the attention of Metro Bank to the alteration of the check in
question until after the lapse of nine days, negates whatever right it might have had against
Metro Bank in the light of the said Central Bank Circular.
Its remedy lies not against Metro Bank, but against the party responsible for the changing the
name of the payee and the amount on the face of the check.
FNCB contends that the guarantee/indorsement stamp made by Metro Bank is an unqualified
representation that the endorsement on the check was that of the true payee, and that the amount
thereon was the correct amount
Such an indorsement must be read together with the 24-hour regulation on clearing House

NEGO SEC 184- 198

Operations of the Central Bank. Once that 24-hour period is over, the liability on such an
indorsement has ceased.
Metro Bank can not be held liable for the payment of the altered check.
FNCB did not deny the allegation of Metro Bank that before it allowed the withdrawal of the balance
of P17,920.00 by Salvador Sales, Metro Bank withheld payment and first verified, the regularity and
genuineness of the check deposit from FNCB, because its (Metro Bank) attention was called by the
fast movement of the account.
Only upon being assured that the same is not unusual did Metro Bank allow the withdrawal of
the balance

Doctrines:
Altered Checks; Absence of liability of collecting bank for failure of drawee bank to return an alleged
altered check to the collecting bank within the 24-hour clearing house period after receipt of check
from the Central Bank clearing house; Remedy of drawee bank is with the party responsible for the
alteration, not with the collecting bank
Unqualified endorsement of collecting bank on the check should be read together with the 24-hour
regulation on clearing house operations.
Precaution of collecting bank by verifying from drawee bank the regularity and genuineness of the
check deposit precludes liability of collecting bank on the altered check.

6. REPUBLIC BANK V. CA- DONDON


Emergency Recit:
San Miguel issued a dividend check on its account in FNCB to Delgado (stockholder) for Php240. This was
materially altered to Php9,240. Delgado deposited this to his account in Republic Bank (RB) then sneakily
withdrew everything.
RB accepted the check (as collecting bank), cleared it, and indorsed it to FNCB (drawee bank) who then paid
RB.
San Miguel then told FNCB of material alteration. FNCB recredited SMCs account. FNCB now wants to collect
from RB.
RB refuses to pay. RTC and CA order RB to pay.
SC reverses and absolves RB from liability. The reason is that FNCB did not notify RB on time pursuant to CB
Rule of 24-hour clearing house rule. Check ratio for discussion.

GRINO-AQUINO, J.:

FACTS:
January 25, 1966 San Miguel Corporation (SMC), drew a dividend Check No. 108854 for P240, on its
account in First National City Bank (FNCB) in favor of J. Roberto C. Delgado, a stockholder.
After the check had been delivered to Delgado, the amount on its face was fraudulently materially
altered by increasing it from P240 to P9,240.
March 14, 1966 Delgado deposited the check in his account with the petitioner Republic Bank (RB)

RB accepted the check for deposit without ascertaining its genuineness and regularity.
Later, RB endorsed the check to FNCB by stamping on the back of the check all prior and/or lack of
indorsement guaranteed and presented it to FNCB for payment through the Central Bank Clearing
House.

NEGO SEC 184- 198

March 15, 1966 Believing the check was genuine, and relying on the guaranty and endorsement of
RB appearing on the back of the check, FNCB paid P9,240 to RB through the Central Bank Clearing
House

April 19, 1966 SMC notified FNCB of the material alteration in the amount of the check in question.
FNCB recredited P9,240 to SMC.
May 19, 1966 FNCB informed RB in writing of the alteration and the forgery of the endorsement of
J. Roberto C. Delgado.
However, by then Delgado had already withdrawn his account from RB.

August 15, 1966 - FNCB demanded that Republic refund the P9,240 on the basis of the latters
endorsement and guaranty.
RB refused, claiming:
o there was delay in giving it notice of the alteration;
o that it was not guilty of negligence;
o that it was the drawers (SMCs) fault in drawing the check in such a way as to permit the
insertion of numerals increasing the amount;
o that FNCB, as drawee, was absolved of any liability to the drawer (SMC), thus, FNCB had no
right of recourse against RB.

April 8, 1968 - the trial court rendered judgment ordering RB to pay P9,240 to FNCB with 6% interest
per annum from February 27, 1967 until fully paid, plus P2,000 for attorneys fees and costs of the
suit.
Court of Appeals affirmed that decision, but modified the award of attorneys fees by reducing it to
P1,000 without pronouncement as to costs

Hence, this petition for review by RB because it did not want to pay

ISSUES:
W/N Republic, as the collecting bank, is protected, by the 24-hour clearing house rule, found in CB
Circular No. 9, as amended, from liability to refund the amount paid by FNCB, as drawee of the SMC
dividend check. YES it is protected and not liable

HELD:
WHEREFORE, the petition for review is granted. The decision of the Court of Appeals is hereby reversed and
set aside, and another is entered absolving the petitioner Republic Bank from liability to refund to the First
National City Bank the sum of P9,240, which the latter paid on the check in question. No costs

RATIO:

The 24-hour clearing house rule embodied in Section 4(c) of Central Bank Circular No. 9, as amended,
provides:
Items which should be returned for any reason whatsoever shall be returned directly to the bank,
institution or entity from which the item was received. For this purpose, the Receipt for Returned
Checks (Cash Form No. 9) should be used. The original and duplicate copies of said Receipt shall be
given to the Bank, institution or entity which returned the items and the triplicate copy should be
retained by the bank, institution or entity whose demand is being returned. At the following clearing,
the original of the Receipt for Returned Checks shall be presented through the Clearing Office as a
demand against the bank, institution or entity whose item has been returned. Nothing in this section

NEGO SEC 184- 198

shall prevent the returned items from being settled by direct reimbursement to the bank, institution
or entity returning the items. All items cleared at 11:00 oclock A.M. shall be returned not later than
2:00 oclock P.M. on the same day and all items cleared at 3:00 oclock P.M. shall be returned not
later than 8:30 A.M. of the following business day except for items cleared on Saturday which may be
returned not later than 8:30 A.M. of the following day.


The 24-hour clearing house rule is a valid rule applicable to commercial banks.

General Rule: when an endorsement is forged, the collecting bank or last endorser, as a general rule, bears the
loss.
But the unqualified endorsement of the collecting bank on the check should be read together with the 24-hour
regulation on clearing house operation.
Thus, when the drawee bank fails to return a forged or altered check to the collecting bank within the 24-hour
clearing period, the collecting bank is absolved from liability.

Hongkong & Shanghai Banking Corp. vs. Peoples Bank & Trust Co:
In this case, the check was not returned to Metro Bank in accordance with the 24-hour clearing house period,
but was cleared by FNCB. Failure of FNCB, therefore, to call the attention of Metro Bank to the alteration of
the check in question until after the lapse of nine days, negates whatever right it might have had against
Metro Bank in the light of the said Central Bank Circular. Its remedy lies not against Metro Bank, but against
the party responsible for changing the name of the payee and the amount on the face of the check.


Philippine National Bank vs. Quimpo:
There is nothing inequitable in such a rule for if in the regular course of business the check comes to the
drawee bank which, having the opportunity to ascertain its character, pronounces it to be valid and pays it, it is
not only a question of payment under mistake, but payment in neglect of duty which the commercial law
places upon it, and the result of its negligence must rest upon it.

The Court of Appeals erred in laying upon Republic, instead of on FNCB the drawee bank, the burden of loss
for the payment of the altered SMC check, the fraudulent character of which FNCB failed to detect and warn
Republic about, within the 24-hour clearing house rule.

Where a loss, which must be borne by one of two parties alike innocent of forgery, can be traced to the
neglect or fault of either, it is reasonable that it would be borne by him, even if innocent of any intentional
fraud, through whose means it has succeeded.

24-hour clearing house rule, valid; When the drawee bank fails to return a forged or altered check to the
collecting bank within 24-hour clearing period, the collecting bank is absolved from liability
alteration, or it bears the loss. Thus, the CA decicion is reversed, and Republic Bank is absolved from liability.

7. BPI V. CA - lifted from Weigand

Facts: BPI received a call from Fernando, one of its customers, who requested to close or pre-
terminate her money market placement, as evidence by a promissory note with a maturity P2.5 million. BPI
prepared the
value of purchase order slip for pre-termination, and issued 2 checks as per Fernandos request. Fernando
instructed BPI to deliver the checks to her office in Philamlife, but later changed her mind, and said that the

NEGO SEC 184- 198

checks will be picked up by her niece Rosemarie with authorization. No call was made to Fernando to verify
the pre- termination. The check was picked up by Rosemarie evidenced by a receipt. The checks were
deposited with Chinabank, and Fernando opened an account with them, accompanied with one of the banks
former clients. The account was opened with the Manager of China Bank, and its employee wrote on the
application that she was referred by another valued client, and not the one who accompanied her. The checks
were then deposited in the new account in China Bank. Thereafter, various withdrawals were made by the
supposed Fernando, and left a balance therein pf about P571.61. The real Fernando went to BPI to roll over
her money market placement, but found out that it was pre-terminated. The 2 checks wre returned by BPI to
CHinabank and sought to have the latter return the amount. Chinabank refused to pay saying that the demand
was made beyond the 24-hour clearing period. Thus, a complaint for estafa was filed against 4 BPI employees.
The arbitration committee of PCHCruled in favor of BPI. An MR was filed and PCHC reversed itself. The RTC
dismissed the case, but modified the order, and this was affirmed by the CA.
Held: A check bearing a forged indorsement and such is necessary for negotiation, may be the basis for the
filing of an action. The Payees name on the 2 checks were forged, and are thus wholly inoperative and of no
effect. Both BPI and China Bank are negligent. But, BPIs negligence was the proximate cause of the payment
of the forged checks by an impostor. China Bank had no prior notice of the fraud perpetrated by BPIs
employees on the pre-termination of Fernandos money market placement. Fernando is also not a depositor
of China Bank, hence the comparison of Fernandos signature with that of the impostor would not have
resulted in the fraud. The gap of 1 day between the issuance and delivery of checks and the impostors
negotiation thereof with deposit in China Bank is not controlling. But, China Bank employees are also
negligent, as it closed its eyes to the suspicious opening of the account and the withdrawals of large amounts.
And since both are negligent, BPI is liable for 60% of the value of the checks, while China Bank is liable for 40%.

8. PHIL BANK V. CA (READ DISSENT) ANGEL

Facts:

Rommels Marketing Corp. (RMC) had 2 accounts with PBCom.
Its President Lipana entrusted funds totaling P304,979 to his Secretary YAbut to be deposited in the
account with PBCom.
But such deposit was not made in RMCs account, as the amount was deposited in the account of
Yabuts husband.
Deposit slips were completed by YAbut in twos, one with the account number of her husband and the
latters name, and the other only with her husbands account number.
Yabut would then present both deposit slips to the teller, and the teller would stamp and sign both.
The completed slip was retained by PBCom and the incomplete one was retained by Yabut, and she
would then insert RMCs account name and number.
But Lipana never checked the statements of account, thus the scam went on for more than 1 year.
On discovery of the loss, RMC demanded the return of the money taken by YAbut, but such demand
was refused.
A case was filed in the RTC, but the latter found PBCom negligent and ordered the return of the
amounts to RMCs account.
The CA affirmed the decision with some modifications.

Held:
PBCom is the proximate cause of the loss.
The test by which negligence is determined is did the defendant use reasonable care and caution
which an ordinary person would have used in the same situation? the Banks teller here was
negligent in validating, officially stamping and signing all the deposit slips prepared and presented by

NEGO SEC 184- 198

Yabut, despite the fact that the duplicate copy was not completely accomplished contrary to the self-
imposed procedure of the bank.
But, RMC is also negligent in failing to check its statements which caused the loss and such continued
for more than 1 year.
The Bank Manager also failed to know that deposit slips validated in total disregard of procedure.
The Court used the doctrine of last clear chance to determine who shoulders the loss, and it was
found that PBCom had the lass clear chance to prevent the loss.
Thus the loss should be borne by both, with 60% being borne by PBCom and 40% borne by RMC. And,
PBCom may recover the amount from its teller, Mabayad.

PADILLAS DISSENT

It seems that an innocent bank teller is being unduly burdened with what should fall on Yabut, who
should have been charged with estafa or estafa through falsification of private document.
When Yabut wrote the name of RMC on the blank account name on the validated duplicate copy of
the deposit slip, tampered with its account number, and superimposed RMC's account number, said
act only served to cover-up the loss already caused by her to RMC, or after the deposit slip was
validated by the teller in favor of Yabut's husband.
When there is a clear evidence of tampering with any of the material entries in a deposit slip, the
genuineness and due execution of the document become an issue in resolving whether or not the
transaction had been fair and regular and whether the ordinary course of business had been followed
by the bank.
The legal or proximate cause of RMC's loss was when Yabut, its employee, deposited the money of
RMC in her husband's name and account number instead of that of RMC, the rightful owner of such
deposited funds. Precisely, it was the criminal act of Yabut that directly caused damage to RMC, her
employer, not the validation of the deposit slip by the teller as the deposit slip was made out by Yabut
in her husband's name and to his account.
In fine, the damage had already been done to RMC when Yabut deposited its funds in the name and
account number of her husband with petitioner bank. It is then entirely left to speculation what Yabut
would have done afterwards like tampering both the account number and the account name on
the stub of the original deposit slip and on the duplicate copy in order to cover up her crime.
Hence, the act of validating the duplicate copy was not the proximate cause of RMC's injury but
merely a remote cause which an independent cause or agency merely took advantage of to
accomplish something which was not the probable or natural effect thereof. That explains why Yabut
still had to tamper with the account number of the duplicate deposit slip after filling in the name of
RMC in the blank space.

Last Clear Chance

The doctrine assumes that the negligence of the defendant was subsequent to the negligence of the
plaintiff and the same must be the proximate cause of the injury. In short, there must be a last and
a clear chance, not a last possible chance, to avoid the accident or injury. It must have been a chance
as would have enabled a reasonably prudent man in like position to have acted effectively to avoid
the injury and the resulting damage to himself.
In the case at bar, the bank was not remiss in its duty of sending monthly bank statements to private
respondent RMC so that any error or discrepancy in the entries therein could be brought to the
bank's attention at the earliest opportunity. Private respondent failed to examine these bank
statements not because it was prevented by some cause in not doing so, but because it was
purposely negligent as it admitted that it does not normally check bank statements given by banks.

NEGO SEC 184- 198

It was private respondent who had the last and clear chance to prevent any further misappropriation
by Yabut had it only reviewed the status of its current accounts on the bank statements sent to it
monthly or regularly. Since a sizable amount of cash was entrusted to Yabut, private respondent RMC
should, at least, have taken ordinary care of its concerns, as what the law presumes. Its negligence,
therefore, is not contributory but the immediate and proximate cause of its injury.

9. MANILA LIGHTER TRANSPO V. CA and CHINA BANKING CORPORATION GASTON

Emergency Recit
Complaint for recovery of 49 checks that were fraudulently endorsed by an employee of Manila Light Transpo
to the prejudice of said company. Lower court holds that both MLT and China Banking Corp are negligent and
therefore liable for the checks. CA modifies and holds only MLT liable for the checks. SC affirms CA:

[DOCTRINE] Since the MLT was not a client of CBC, i.e., did not maintain an account in CBC, CBC had
no way of ascertaining the authenticity of its indorsements on the checks which were deposited in the
accounts of the third-party defendants in said Bank.
[DOCTRINE] CBC was not negligent because, in accordance with banking practice, it caused the checks
to pass through the clearing house before it allowed their proceeds to be withdrawn by the
depositors (third-party defendants in the lower court).

I.

FACTS
A complaint for recovery
o Of the value of (49) checks
o With alleged forged/unauthorized indorsements of the payee
o Of which 26 were paid to the MANILA LIGHTER TRANSPORTATION (MLT) or order, and
o (23) to MLT or bearer
The complaint alleged that:
o The checks were issued by customers of MLT in payment of brokerage/lighterage services
and
o Were all delivered, without MLTS knowledge, to its collector, Augusto Perez.
Upon forged indorsements of the MLTS general manager, the checks found their way into the
accounts of third persons in the CHINA BANKING CORPORATION (CBC)
o The proceeds were later withdrawn, to the damage of the MLT who sought reimbursement
or restoration by said bank of the value of the checks.
CBC denied liability for the MLTS loss which was due to its own negligence.
Facts as per Trial Court:
o Over a period of 18 months, Augusto Perez collected from different clients of MLT some 49
checks with a total value of P91,153.11.
o The endorsement of the payee, MLT, by its general manager, Luis Gaskell, appears on the

NEGO SEC 184- 198

o
o
o
o

checks.
Gaskell disclaimed such signatures and presented a handwriting expert who gave the opinion
that the signatures "L. Gaskell" on the endorsement were indeed forgeries.
The checks as thus endorsed were negotiated by Wilfredo Lagamon, accountant of the MLT
and relative of Gaskell, to Cao Pek and Co., an electronic store, whose treasurer is Ko Lit.
Most of the checks, with a total amount of P90,500.24, were deposited by Ko Lit in his
account with CBC.
Three checks with a total amount of P1,115.05 were deposited in the account of Cao Pek &
Co. while one check for P2,735.19 was deposited in the accounts of Lu Siu Po, manager of
Cao Pek & Co.
These accounts have no more balances at present.
As late as July 21, 1961, MLT apparently did not know what was happening because on that
date it sent S. Quintos Transportation, Inc., one of its clients whose checks were collected by
Augusto Perez, the following letter:
"Upon a detailed examination of our records, we found out that various jobs
undertaking (sic) by us in your behalf in 1960 and 1961 are still pending payment as of
this date.
We are sending you herewith our statement covering these jobs which amount to
P23,520.30 and would request you to kindly confirm its correctness at your earliest.

II.

III.

IV.

The lower court found both parties equally negligent,

o MLT, for allowing a state of affairs in which its employees could appropriate the checks and
falsify the indorsement thereon of its manager with impunity, and
o the CBC for not detecting the falsification made by MLTs employees when the checks were
presented to it.
CA modifies judgment; releases CBC from liability

ISSUES
W/N CA was correct in holding MLT liable for the checks on account of its negligence.
W/N CA was correct in releasing CBC from liability for the checks.

HELD
The petition for review is denied for lack of merit

RATIO
The main issue of MLTS negligence had already been determined by the trial court against MLT and
affirmed by the Court of Appeals after examining the evidence in the records.
[DOCTRINE] Since the MLT was not a client of CBC, i.e., did not maintain an account in CBC, CBC had
no way of ascertaining the authenticity of its indorsements on the checks which were deposited in the
accounts of the third-party defendants in said Bank.
[DOCTRINE] CBC was not negligent because, in accordance with banking practice, it caused the checks
to pass through the clearing house before it allowed their proceeds to be withdrawn by the
depositors (third-party defendants in the lower court).
[NOT NEGO] The Supreme Court decides appeals that only involve questions of law. It is not the
function of the Supreme Court to analyze or weigh the evidence all over again, its jurisdiction being
limited to resolving errors of law that might have been committed by the lower court.

10. WESTMONT V. ONG NORBY

NEGO SEC 184- 198

Emergency Recit:
Ong sold shares of stock to Island Securities. Island purchased 2 managers checks from Pacific Bank. Before
Ong could, his friend, Tanlimco, got a hold of the checks, forged Ongs signature, deposited it in Westmont
(both those guys have an account in Westmont). Ong now sues Westmont for value of checks. Ong wins in all
courts. Westmont argues that Ong has no cause of action since checks were never delivered to him and he
never became a holder. SC says that Ong merely uses one action to reach, by a desirable short cut, the person
who out to be ultimately liable. In other words, the payee ought to be allowed to recover directly from the
collecting bank, regardless of whether the check was delivered to the payee or not. Westmont also claims
laches, but SC Ong did not sleep with his rights.
**The case presented no new doctrines to what we already know, except perhaps for the part about payee
being allowed to sue directly. Not feeling too well as of this writing.
The Facts
1.
2.
3.
4.

5.

6.

7.
8.

Eugene Ong maintained a current account with petitioner, formerly the Associated Banking
Corporation, but now known as WESTMONT Bank.
Sometime in May 1976, he sold certain shares of stocks through Island Securities Corporation.
To pay Ong, Island Securities purchased two (2) Pacific Banking Corporation managers checks, both
in the name of Eugene Ong as payee.
Before Ong could get hold of the checks, his friend Paciano Tanlimco got hold of them, forged Ongs
signature and deposited these with WESTMONT.
a. Tanlimco was also a depositor.
Even though Ongs specimen signature was on file, petitioner accepted and credited both checks to
the account of Tanlimco, without verifying the signature indorsements appearing at the back
thereof.
a. Tanlimco then immediately withdrew the money and absconded.
Instead of going straight to the bank to stop or question the payment, Ong first sought the help of
Tanlimcos family to recover the amount. He then reported the incident to the Central Bank, which
unfortunately proved futile.
After 5 months from discovery of the fraud, Ong demanded in his complaint that WESTMONT pay the
value of the two checks from the bank on whose gross negligence he imputed his loss.
RTC and CA ruling:
a. WESTMONT to pay P1.75 M, the total face value of the two checks, plus interest from
demand, P350k damages, 50k attorneys fees.
b. Court of Appeals affirms in toto.

Issues
1.
2.
3.

whether or not respondent Ong has a cause of action against petitioner Westmont - YES
Whether or not Westmont is liable to Ong - YES
whether or not Ong is barred to recover the money from Westmont due to laches - NO

Ratio:
xxx Westmont further argues that since Section 191 of the Negotiable Instruments Law defines a holder as
the payee or indorsee of a bill or note, who is in possession of it, or the bearer thereof, in order to be a

NEGO SEC 184- 198

holder, it is a requirement that he be in possession of the instrument or the bearer thereof. Simply stated,
since Ong never had possession of the checks nor did he authorize anybody, he did not become a holder
thereof hence he cannot sue in his own name.
Petitioner also cites Article 1249 of the Civil Code explaining that a check, even if it is a managers check, is not
legal tender. Hence, the creditor cannot be compelled to accept payment thru this means. It is petitioners
position that for all intents and purposes, Island Securities has not yet tendered payment to respondent Ong,
thus, any action by Ong should be directed towards collecting the amount from Island Securities. Petitioner
claims that Ongs cause of action against it has not ripened as of yet. It may be that petitioner would be liable
to the drawee bank - - but that is a matter between petitioner and drawee-bank, Pacific Banking Corporation.
This is without merit.
The complaint filed before the trial court expressly alleged Ongs right as payee of the managers checks to
receive the amount involved, Westmonts correlative duty as collecting bank to ensure that the amount gets to
the rightful payee or his order, and a breach of that duty because of a blatant act of negligence on the part of
Westmont which violated Ongs rights.
Under Section 23 of the Negotiable Instruments Law: xxx
The collecting bank is liable to the payee and must bear the loss because it is its legal duty to ascertain that the
payees endorsement was genuine before cashing the check. As a general rule, a bank or corporation who has
obtained possession of a check upon an unauthorized or forged indorsement of the payees signature and who
collects the amount of the check from the drawee, is liable for the proceeds thereof to the payee or other
owner, notwithstanding that the amount has been paid to the person from whom the check was obtained.
The theory of the rule is that the possession of the check on the forged or unauthorized indorsement is
wrongful, and when the money had been collected on the check, the bank or other person or corporation can
be held as for moneys had and received, and the proceeds are held for the rightful owners who may recover
them. The position of the bank taking the check on the forged or unauthorized indorsement is the same as if it
had taken the check and collected the money without indorsement at all and the act of the bank amounts to
conversion of the check.
Westmonts claim that since there was no delivery yet and Ong has never acquired possession of the checks,
Ongs remedy is with the drawer (Pacific) and not with Westmont. Westmont relies on the view to the effect
that where there is no delivery to the payee and no title vests in him, he ought not to be allowed to recover on
the ground that he lost nothing because he never became the owner of the check and still retained his claim of
debt against the drawer. However, another view in certain cases holds that even if the absence of delivery is
considered, such consideration is not material. The rationale for this view is that in said cases the plaintiff
uses one action to reach, by a desirable short cut, the person who ought in any event to be ultimately liable
as among the innocent persons involved in the transaction. In other words, the payee ought to be allowed
to recover directly from the collecting bank, regardless of whether the check was delivered to the payee or
not.
Considering the circumstances in this case, in our view, Westmont could not escape liability for its negligent
acts. Admittedly, respondent Eugene Ong at the time the fraudulent transaction took place was a depositor of
Westmont. Banks are engaged in a business impressed with public interest, and it is their duty to protect in
return their many clients and depositors who transact business with them. As found by the trial court:

NEGO SEC 184- 198

The Court cannot help but note that had defendant conducted even the most cursory comparison
with plaintiffs specimen signatures in its files it would have at once seen that the alleged
indorsements were falsified and were not those of the plaintiff-payee. However, defendant
apparently failed to make such a verification or, what is worse did so but, chose to disregard the
obvious dissimilarity of the signatures. The first omission makes it guilty of gross negligence; the
second of bad faith.
On the third issue (laches), the matter of delay in reporting the loss, Ong calls attention to the fact that the
checks were issued on May 4, 1976, and on the very next day, May 5, 1976, these were already credited to the
account of Paciano Tanlimco and presented for payment to Pacific Banking Corporation. So even if the theft of
the checks were discovered and reported earlier, Ong argues, it would not have altered the situation as the
encashment of the checks was consummated within twenty four hours and facilitated by the gross negligence
of the Westmont.
In the case at bar, it cannot be said that Ong sat on his rights. He immediately acted after knowing of the
forgery by proceeding to seek help from the Tanlimco family and later the Central Bank, to remedy the
situation and recover his money from the forger, Paciano Tanlimco. Only after he had exhausted possibilities
of settling the matter amicably with the family of Tanlimco and through the CB, about five months after the
unlawful transaction took place, did he resort to making the demand upon the Westmont and eventually
before the court for recovery of the money value of the two checks.

11. ASSOCAITED BANK V. CA CJ


Emergency Recit:
Reyes was paid checks by her clients. These checks were crossed checks payable to her company. These checks
were deposited to Associated Bank, which paid the amounts of the check to Saysonwho was not authorized
by Reyes to deposit or encash the checks. Bank says that Reyes has no cause of action against her. Issue: W/N
bank is liable to Reyes? YES. The bank accepted crossed checks from Sayson even though they were crossed
and Reyes was named as payee. The Bank stamped thereon its guarantee that "all prior endorsements and/or
lack of endorsements (were) guaranteed." By such deliberate and positive act, the Bank had for all legal
intents and purposes treated the said checks as negotiable instruments and, accordingly, assumed the
warranty of the endorser. The banks are considered experts in this field and are considered negligent for not
checking up to the validity of the checks and its purpose. There was a contention that the check was indorsed
by REYES husband (unauthorized). The court said that as to banks, it would be the same if they paid a forged
check/unauthorized indorsement and if the check had no indorsement at all. The bank would still be liable.


I. FACTS
REYES is engaged in the business of ready-to-wear garments under the firm name "Melissa's RTW."
She deals with, among other customers, Robinson's Department Store, Payless Department Store,
Rempson Department Store, and the Corona Bazaar.
These companies issued in payment of their respective accounts crossed checks payable to Melissa's
RTW in the amounts and on the dates indicated below:
o PAYOR BANK AMOUNT DATE
Payless
Solid
Bank
P3,960.00
January
19,
1982
Robinson's
FEBTC
4,140.00
December
18,
1981
Robinson's
FEBTC
1,650.00
December
24,
1981

NEGO SEC 184- 198

Robinson's
FEBTC
1,980.00
January
12,
1982
Rempson
TRB
1,575.00
January
9,
1982
Corona RCBC 2,500.00 December 22, 1981
When she went to these companies to collect on what she thought were still unpaid accounts, she
was informed of the issuance of the above-listed crossed checks.
The said checks had been deposited with the Associated Bank (hereinafter, "the Bank") and
subsequently paid by it to one Rafael Sayson, one of its "trusted depositors."
o Sayson had not been authorized by REYES to deposit and encash the said checks.
The Bank appealed to the CA, reiterating their argument that REYES had no cause of action against
them and should have proceeded instead against the companies that issued the checks.

CA:
The cause of action of REYES in the case at bar arose from the illegal, anomalous and irregular acts of
the bank in violating common banking practices to the damage and prejudice of REYES, in allowing to
be deposited and encashed as well as paying to improper parties without the knowledge, consent,
authority or endorsement of REYES
o which totalled P15,805.00, the six (6) checks in dispute which were "crossed checks" or "for
payee's account only," REYES being the payee.
The three (3) elements of a cause of action are present in the case at bar,
o (1) a right in favor of the plaintiff by whatever means and under whatever law it arises or is
created;
o (2) an obligation on the part of the named defendant to respect or not to violate such right;
and
o (3) an act or omission on the part of such defendant violative of the right of the plaintiff or
constituting a breach thereof.
And such cause of action has been proved by evidence of great weight. The contents of the said
checks issued by the customers of REYES had not been questioned.
There is no dispute that the same are crossed checks or for payee's account only, which is Melissa's
RTW.
REYES had clearly shown that she had never authorized anyone to deposit the said checks nor to
encash the same;
That the bank had allowed all said checks to be deposited, cleared and paid to one Rafael Sayson in
violation of the instructions in the said crossed checks that the same were for payee's account only;
and
That REYES maintained a savings account with the Prudential Bank, which never cleared the said
checks.
REYES had been damaged by such encashment of the same.
Issue: The sole issue raised in this case is whether or not REYES has a cause of action against The Bank for their
encashment and payment to another person of certain crossed checks issued in her favor. YES
And if the bank is liable to her. YES
Held: CA decision affirmed. Bank liable.

Ratio:
Under accepted banking practice, crossing a check is done by writing two parallel lines diagonally on
the left top portion of the checks.
o The crossing is special where the name of a bank or a business institution is written between
the two parallel lines, which means that the drawee should pay only with the intervention of
that company.
o The crossing is general where the words written between the two parallel lines are "and Co."
or "for payee's account only," as in the case at bar. This means that the drawee bank should

NEGO SEC 184- 198

not encash the check but merely accept it for deposit.
The effects of crossing a check are:
o (1) that the check may not be encashed but only deposited in the bank;
o (2) that the check may be negotiated only once to one who has an account with a bank;
and
o (3) that the act of crossing the check serves as a warning to the holder that the check has
been issued for a definite purpose so that he must inquire if he has received the check
pursuant to that purpose."
The effects therefore of crossing a check relate to the mode of its presentment for payment.
Under Sec. 72 of the Negotiable Instruments Law,
o presentment for payment, to be sufficient, must be made by the holder or by some person
authorized to receive payment on his behalf. Who the holder or authorized person is
depends on the instruction stated on the face of the check.
The six checks in the case at bar had been crossed and issued "for payee's account only." This could
only signify that the drawers had intended the same for deposit only by the person indicated, to wit,
Melissa's RTW.
The Bank argues:
That the cause of action for violation of the common instruction found on the face of the checks
exclusively belongs to the issuers thereof and not to the payee.
Moreover, having acted in good faith as they merely facilitated the encashment of the checks, they
cannot be made liable to REYES.
REYES has no cause of action against them because they have no privity of contract with her. They
also argue that it was Eddie Reyes, REYES's own husband, who endorsed the checks.
SC on the case:
The subject checks were accepted for deposit by the Bank for the account of Rafael Sayson although
they were crossed checks and the payee was not Sayson but Melissa's RTW.
The Bank stamped thereon its guarantee that "all prior endorsements and/or lack of endorsements
(were) guaranteed."
o By such deliberate and positive act, the Bank had for all legal intents and purposes treated
the said checks as negotiable instruments and, accordingly, assumed the warranty of the
endorser.
The weight of authority is to the effect that "the possession of check on a forged or unauthorized
indorsement is wrongful, and when the money is collected on the check, the bank can be held 'for
moneys had and received." The proceeds are held for the rightful owner of the payment and may be
recovered by him.
o The position of the bank taking the check on the forged or unauthorized indorsement is the
same as if it had taken the check and collected without indorsement at all. The act of the
bank amounts to conversion of the check.
It is not disputed that the proceeds of the subject checks belonged to REYES. As she had not at any
time authorized Rafael Sayson to endorse or encash them, there was conversion of the funds by the
Bank.
When the Bank paid the checks so endorsed notwithstanding that title had not passed to the
endorser, it did so at its peril and became liable to the payee for the value of the checks. This liability
attached whether or not the Bank was aware of the unauthorized endorsement.
The Bank was negligent when they permitted the encashment of the checks by Sayson.
The Bank should have first verified his right to endorse the crossed checks, of which he was not the
payee, and to deposit the proceeds of the checks to his own account.
The Bank was by reason of the nature of the checks put upon notice that they were issued for deposit
only to REYES's account. Its failure to inquire into Sayson's authority was a breach of a duty it owed to

NEGO SEC 184- 198

REYES.
"the law imposes a duty of diligence on the collecting bank to scrutinize checks deposited with it, for
the purpose of determining their genuineness and regularity. The collecting bank, being primarily
engaged in banking, holds itself out to the public as the expert on this field, and the law thus holds it
to a high standard of conduct."
Assuming that Eddie Reyes did endorse the crossed checks, we hold that the Bank would still be liable
to REYES because he was not authorized to make the endorsements. And even if the endorsements
were forged, as alleged, the Bank would still be liable to REYES for not verifying the endorser's
authority. There is no substantial difference between an actual forging of a name to a check as an
endorsement by a person not authorized to make the signature and the affixing of a name to a check
as an endorsement by a person not authorized to endorse it.
The Bank does not deny collecting the money on the endorsement. It was its responsibility to inquire
as to the authority of Rafael Sayson to deposit crossed checks payable to Melissa's RTW upon a prior
endorsement by Eddie Reyes. The failure of the Bank to make this inquiry was a breach of duty that
made it liable to REYES for the amount of the checks.
There being no evidence that the crossed checks were actually received by REYES, she would have a
right of action against the drawer companies, which in turn could go against their respective drawee
banks, which in turn could sue the herein petitioner as collecting bank.
In a similar situation, it was held that, to simplify proceedings, the payee of the illegally encashed
checks should be allowed to recover directly from the bank responsible for such encashment
regardless of whether or not the checks were actually delivered to the payee. We approve such direct
action in the case at bar.
We find that the respondent court committed no reversible error in holding that REYES had a valid cause
of action against The Bank and that the latter are indeed liable to her for their unauthorized encashment
of the subject checks. We also agree with the reduction of the award of the exemplary damages for lack of
sufficient evidence to support them.


12. TAN V. CA and RIZAL COMMERCIAL BANKING CORPORATION LOPA

Emergency Recit:
o Tan is a big-time trader-businessman from Puerto Prinsesa. He got a cashiers check from PCIB Puerto
and gave it to RCBC Binondo. BUT he filled up the wrong deposit slip (local deposit slip) instead of a
regional check deposit slip.
o Local to be cleared with Central Bank. Regional to be cleared with PCIB Puerto.
o RCBC also made a mistake because they gave the check to CB instead of PCIB.
o Without Tans knowledge, RCBC debited his account.
o Tan issued 2 personal checks based on the money he supposedly had from the cashiers check. Both
returned for insufficiency of funds.
o Tan filed case because of besmirched reputation.
o RTC: RCBC should pay tan for moral and exemplary damages. CA reversed saying Tans filling up of
wrong deposit slip was the proximate cause.
o SC: Bank is at fault
o Doctrines:
o As a business affected with public interest and because of the nature of its functions, the bank is
under obligation to treat the accounts of its depositors with meticulous care, always having in
mind the fiduciary nature of their relationship.

NEGO SEC 184- 198

o

Bank must bear the blame for not discovering the mistake of its teller despite the established
procedure requiring the papers and bank books to pass through a battery of bank personnel
whose duty it is to check and countercheck them for possible errors.
A cashier's check is a primary obligation of the issuing bank and accepted in advance by its mere
issuance. By its very nature, a cashier's check is the bank's order to pay drawn upon itself,
committing in effect its total resources, integrity and honor behind the check. A cashier's check
by its peculiar character and general use in the commercial world is regarded substantially to be

as good as the money which it represents.

KAPUNAN, J.:

FACTS:
o Ramon Tan trader-businessman and community leader in Puerto Prinsesa
o maintained Acct. No 109058068 with RCBC Binondo since 1976
o Tan secured Cashiers Check No. L 406000126 for P30,000 from Philippine Commercial Industrial Bank
(PCIB) Puerto Prinsesa Branch payable to his order
o Deposited with RCBC Binondo. Used a local deposit slip instead of a regional check deposit
slip.
o RCBC erroneously sent check to Central Bank for clearing. Returned for being missent or
misrouted (not important)
o RCBC debited P30,000 from Tans account. Tan didnt know RCBC did this until 42 days later when he
received the banks debit memo.
o Tan issued 2 personal checks:
o in the name of Go Lac for P5,500 (Check 1)
o in the name of MSDevelopment Trading Corporation for P6,053.75 (Check 2)
o Tan issued check 1 and 2 relying on the ff:
o Common knowledge that cashiers check is good as cash
o Usual banking practice: local checks cleared within 3 working days and regional checks within
7 working days
o Fact that cashiers check was accepted
o Check 1 presented more than 30 days from Tans deposit date of cashiers check.
o Check 2 Returned twice for insufficiency of funds.
o Tan filed a complaint against RCBC because he suffered humiliation and loss of face in the business
sector due to the bounced checks. (RTC of Palawan and Puerto Prinsesa)

Tans Claims
RCBCs defense
o RCBC negligent. It was RCBCs o misrouting was Tans fault for using the wrong check deposit
responsibility to tell him that he filled the
slip.
wrong deposit slip when he deposited the o RCBC was right in debiting Tans account based on
cashiers check.
Resolution No. 2202 of the Monetary Board - it is a matter of
o RCBC remiss in the performance of its
policy to prohibit the drawing against uncollected deposits
obligation to Tan when it missent the
except when the drawings are made against uncollected
cashiers check to CB knowing that the
deposits representing bank manager's/cashier's/treasurer's
source of the check (PCIB Puerto) is not
checks, treasury warrants, postal money orders and duly
included in the areas required to be
funded "on us" checks which may be permitted at the
cleared by CB.
discretion of each bank.
o RCBC did not attempt to rectify its o Without crediting the P30,000.00 deposit, petitioner's
misclearing error by clearing it with PCIB
balance before and after was P2,792.88. Thus, it dishonored
Puerto
the two (2) checks amounting to P11,553.70 since they were

NEGO SEC 184- 198

o As an old client of good standing, RCBC
should have exerted greater diligence in
clearing the check with PCIB to protect
Tans interest
o RCBC failed to inform Tan promptly that
the check had not been cleared, despite
debiting the amount covered from the
check from Tans account and hastily
charging the latter service fees
o RCBCs misclearing had put Tans
credibility in doubt among his business
peers and sullied his reputation as a
community leader, which was a source of
pride for him. Asked for moral damages.

drawn against insufficient funds.

Tan had no bills purchase (BP) line which allows a depositor
to receive or draw from proceeds of a check without waiting
for it to be cleared.
If RCBC forwarded the check to PCIB Puerto Princesa,
Palawan, it would take at least twenty (20) working days for
the cashier's check to be cleared and it would take the same

length of time to clear the two (2) personal checks of Tan.
RCBC was a mere collecting agent. Only responsibility was to
take care in selecting correspondents. Where a check is
deposited in a collecting bank, the relationship created is
that of agency. Not Creditor-Debtor.
RCBC tried to contact Tan through telephone numbers in
signature specimen card but to no avail. Even tried to call
Tans daughter (Evelyn) but when they asked for her, they
were told that there was no such person.

o
o

RTC ruled in favor of Tan. Ordered RCBC to pay P1,035,000 for moral and exemplary damages plus
attorneys fees and costs of suit. No actual damages awarded.
RCBC appealed in CA. CA reversed RTC ruling and dismissed the complaint without pronouncement as
to cost.
o cause of mistake was Tans filling up of the wrong deposit slip
o RCBC tried to inform Tan of the misclearing but could not contact him or his daughter via
telephone. Tans obligation to inform RCBC of changes in telephone numbers to be
contacted in the event of exigency.
o Based on Resolution No. 2202 - Immediate payment without awaiting clearance of a
cashier's check is discretionary with the bank to whom the check is presented. The refusal to
allow it is not to be equated with negligence in the basic perception that discretion is not
demandable as a right.
o Prior to the deposit of P30,000.00, the plaintiff's account appeared to be only in the amount
of P2,792.98. So the two (2) checks issued by the plaintiff amounting to P11,553.70 had to be
dishonored since they were drawn against insufficient funds.
Tan now questions the ruling of CA.

Issues:
1. W/N CA COMMITTED GROSS AND MANIFEST ERROR IN
o CONCLUDING THAT THE NEGLIGENCE WAS ASCRIBABLE TO TAN. YES. RCBC, NOT TAN,
NEGLIGENT.
o FINDING THAT THE RESPONDENT BANK HAD NOT BEEN REMISS IN THE PERFORMANCE OF ITS
OBLIGATIONS TO HEREIN PETITIONER. YES. RCBC DID NOT PERFORM OBLIGATIONS TO TAN WELL
ENOUGH.
o [NOT NEGO] REVERSING THE AWARD OF MORAL AND EXEMPLARY DAMAGES TO THE
PETITIONER. YES
o [NOT NEGO] NOT AWARDING ATTORNEY'S FEES TO PETITIONER. YES

RATIO:
o City Trust Corp v. IAC
o The bank is engaged in business impressed with public interests, and it is its duty to
protect in return its many clients and depositors who transact business with it. It should

NEGO SEC 184- 198

not be a matter of the bank alone receiving deposits, lending out money and collecting
interests. It is also its obligation to see to it that all funds invested with it are properly
accounted for and duly posted in its ledgers.
o Depositors are not concerned with banking procedure. That is the responsibility of the
bank and its employees. Depositors are only concerned with the facility of depositing
their money, earning interest thereon, if any, and withdrawing therefrom, particularly
businessmen, like plaintiff, who are supposed to be always on-the-go.
o The point is that as a business affected with public interest and because of the nature of
its functions, the bank is under obligation to treat the accounts of its depositors with
meticulous care, always having in mind the fiduciary nature of their relationship.
RCBC cannot escape liability by claiming that its depositor "impliedly instructed" the bank to
clear his check with the Central Bank by filling a local check deposit slip.
o Teller should not have accepted the local deposit slip with the cashier's check that on its
face was clearly a regional check without calling the depositor's attention to the mistake
at the very moment this was presented to her. Tans use of wrong deposit slip was not
the proximate cause of the fiasco.
o Personal checks were presented for payment more than 45 days from the day the
cashier's check was deposited. RCBC had enough time to clear the cashiers check.
Instead, RCBC promptly debited the amount of P30,000.00 against petitioner's account
and left it at that.
Bank must bear the blame for not discovering the mistake of its teller despite the established
procedure requiring the papers and bank books to pass through a battery of bank personnel
whose duty it is to check and countercheck them for possible errors.
A cashier's check is a primary obligation of the issuing bank and accepted in advance by its mere
issuance. By its very nature, a cashier's check is the bank's order to pay drawn upon itself,
committing in effect its total resources, integrity and honor behind the check. A cashier's check
by its peculiar character and general use in the commercial world is regarded substantially to be

as good as the money which it represents.

[NEGO ISSUES END HERE. POGI/GANDA POINTS RE: RULING ON DAMAGES FOLLOW]
o For an award of moral damages in a breach of contract, it is imperative that the party acted in bad
faith or fraudulently as provided for in Art. 2220 of the Civil Code, to wit:
o Art. 2220. Willful injury to property may be a legal ground for awarding moral damages if the
court should find that, under the circumstances, such damages are justly due. The same rule
applies to breaches of contract where the defendant acted fraudulently or in bad faith.
o No moral damages = no exemplary damages under Art. 2225 of the same Code which states:
o Exemplary damages or corrective damages are imposed, by way of example or correction for
the public good, in addition to the moral, temperate, liquidated or compensatory damages.
o We hold that Tan the right to recover moral damages even if the bank's negligence may not have
been attended with malice and bad faith.
o caused the private respondent to suffer mental anguish, serious anxiety, embarrassment and
humiliation, for which he is entitled to recover, reasonable moral damages
o damages is only intended to alleviate the moral suffering he has undergone.

IN VIEW WHEREOF, we REVERSE the decision of respondent Court of Appeals and hereby order private
respondent RCBC, Binondo Branch, to pay petitioner the amount of one hundred thousand (P100,000.00)
pesos as moral damages and the sum of fifty thousand (P50,000.00) pesos as attorney's fees, plus costs.

SO ORDERED.

NEGO SEC 184- 198

Padilla, Davide, Jr., Bellosillo and Quiason, JJ., concur.


13. ALLIED BANKING V. LIM, METROBANK AND PRODUCERS BANK KEITH

Emergency Recit:
Lim sio wan placed a deposit in Allied Bank. There was a deceit that occurred. A person claiming to Lim Sio wan
called an officer of Allied and instructed her to issue a check representing the deposit. It was to be picked up
by Deborah Santos. Such managers check was deposited in Metrobank for the account of Filipinas Cement
Corp (FCC) w/ forged signature of Lim Sio Wan. Deborah Santos was an employee of Producers Bank who was
handling the account of FCC. The deposit was made as payment for Producers Banks obligation as debtor to
FCC (money market placement became due). Metrobank signed as an indorser. Upon presentment to Allied
Bank for payment, Allied paid even without checking the authenticity of Lims purported instrument. Upon
discovery by Lim Sio Wan that her money had disappeared, he filed a case for recovery against Allied Bank
stating that he never authorized such transaction. Allied counters saying that they were authorized. RTC ruled
in favor of Lim ordering Allied to pay. CA modified: Allied to pay 60% while Metrobank 40%.
SC: Liability of Allied Bank 60% - They were negligent in issuing a check which had no authorization from Lim
Siao Wan.
Liability of Metrobank 40% - As the last indorsers, they guaranteed that that the instrument is genuine and in
all respects what it purports to be.
Producers Bank shall reimburse Allied Bank and Metrobank on the account of unjust enrichment.

Facts:
On November 14, 1983, respondent Lim Sio Wan deposited with petitioner Allied Banking
Corporation (Allied) at its Quintin Paredes Branch in Manila a money market placement of PhP
1,152,597.35 for a term of 31 days to mature on December 15, 1983
On December 5, 1983, a person claiming to be Lim Sio Wan called up Cristina So, an officer of Allied,
o and instructed the latter to pre-terminate Lim Sio Wans money market placement,
o to issue a managers check representing the proceeds of the placement, and
o to give the check to one Deborah Dee Santos who would pick up the check.
Santos arrived at the bank and signed the application form for a managers check to be issue. The
bank issued Managers Check No. 035669 for PhP 1,158,648.49, representing the proceeds of Lim Sio
Wans money market placement in the name of Lim Sio Wan, as payee.
The check was cross-checked For Payees Account Only and given to D.D. Santos.
Thereafter, the managers check was deposited in the account of Filipinas Cement Corporation (FCC)
at respondent Metropolitan Bank and Trust Co. (Metrobank), with the forged signature of Lim Sio
Wan as indorser.
Earlier, on September 21, 1983, FCC had deposited a money market placement for PhP 2 million
with respondent Producers Bank. Santos was the money market trader assigned to handle FCCs
account.
FCC was a creditor/depositor of Metrobank.
The Allied check was deposited with Metrobank in the account of FCC as Producers Banks payment
of its obligation to FCC.
Metrobank stamped a guaranty on the check, which reads: All prior endorsements and/or lack of
endorsement guaranteed.
The check was sent to Allied. Upon the presentment of the check, Allied funded the check even
without checking the authenticity of Lim Sio Wans purported indorsement.
Thus, the amount on the face of the check was credited to the account of FCC.

NEGO SEC 184- 198

On December 9, 1983, Lim Sio Wan deposited with Allied a second money market placement to
mature on January 9, 1984.
On December 14, 1983, upon the maturity date of the first money market placement, Lim Sio Wan
went to Allied to withdraw it. She was then informed that the placement had been pre-terminated
upon her instructions. She denied giving any instructions and receiving the proceeds thereof. She
desisted from further complaints when she was assured by the banks manager that her money would
be recovered.
On January 24, 1984, Lim Sio Wan, realizing that the promise that her money would be recovered
would not materialize, sent a demand letter to Allied asking for the payment of the first placement.
Allied refused to pay Lim Sio Wan, claiming that the latter had authorized the pre-termination of the
placement and its subsequent release to Santos.
Consequently, Lim Sio Wan filed with the RTC against Allied to recover the proceeds of her first
money market placement.
Lim Sio wan vs. Allied, Allied filed a complaint against Metrobank and Santos. Metrobank and Santos
filed a complaint against FCC. FCC filed a complaint against Producers Bank.
On May 15, 1984, or more than six (6) months after funding the check, Allied informed Metrobank
that the signature on the check was forged.
Thus, Metrobank withheld the amount represented by the check from FCC. Later on, Metrobank
agreed to release the amount to FCC after the latter executed an Undertaking, promising to
indemnify Metrobank in case it was made to reimburse the amount.
RTC Decision: Lim Sio Wan wins. Allied Bank is ordered to pay for its obligation the amount of
P1,158,648.49 + attorneys fees + moral damages. All other cross claims dismissed.
CA modified. 60-40 proportion of payment between Allied (60%) and Metrobank (40%).
Allied appeal.
o They were authorized by Lim no
o Producers Bank should also pay
o CA erred in holding [Allied] liable to the extent of 60% of amount adjudged demandable in
clear disregard to the ultimate liability of Metrobank as guarantor of all endorsement on the
check, it being the collecting bank.

Issue: WON Allied Bank is liable for the amount??

Ratio:
st
1 argument: Allied questions the finding of both the trial and appellate courts that Allied was not authorized
to release the proceeds of Lim Sio Wans money market placement to Santos. Allied clearly raises a question
of fact. When the CA affirms the findings of fact of the RTC, the factual findings of both courts are binding on
this Court.

rd
2-3 argument:
As to the liability of the parties, we find that Allied is liable to Lim Sio Wan.

The relationship between a bank and a client is one of debtor-creditor.

Thus, we have ruled in a line of cases that a bank deposit is in the nature of a simple loan or mutuum.

Lim Sio Wan, as creditor of the bank for her money market placement, is entitled to payment upon her
request, or upon maturity of the placement, or until the bank is released from its obligation as debtor. Until
any such event, the obligation of Allied to Lim Sio Wan remains unextinguished.

NEGO SEC 184- 198

From the factual findings of the trial and appellate courts that Lim Sio Wan did not authorize the release of her
money market placement to Santos and the bank had been negligent in so doing, there is no question that the
obligation of Allied to pay Lim Sio Wan had not been extinguished.

We cannot, however, say outright that Allied is solely liable to Lim Sio Wan.

Allied avers that even if it had not issued the check payment, the money represented by the check would still
be lost because of Metrobanks negligence in indorsing the check without verifying the genuineness of the
indorsement thereon.

The warranty that the instrument is genuine and in all respects what it purports to be covers all the defects
in the instrument affecting the validity thereof, including a forged indorsement.

Thus, the last indorser will be liable for the amount indicated in the negotiable instrument even if a previous
indorsement was forged. We held in a line of cases that a collecting bank which indorses a check bearing a
forged indorsement and presents it to the drawee bank guarantees all prior indorsements, including the
forged indorsement itself, and ultimately should be held liable therefor.

HOWEVER, this general rule is subject to exceptions.

One such exception is when the issuance of the check itself was attended with negligence.

Thus, in the cases cited above where the collecting bank is generally held liable, in two of the cases where the
checks were negligently issued, this Court held the institution issuing the check just as liable as or more liable
than the collecting bank.

The liability of Allied, however, is concurrent with that of Metrobank as the last indorser of the check. When

Metrobank indorsed the check in compliance with the PCHC Rules and Regulations without verifying the
authenticity of Lim Sio Wans indorsement and when it accepted the check despite the fact that it was cross-
checked payable to payees account only, its negligent and cavalier indorsement contributed to the easier
release of Lim Sio Wans money and perpetuation of the fraud. CA was upheld as to 60-40 proportion of
payment.

FCC, having no participation in the negotiation of the check and in the forgery of Lim Sio Wans indorsement,
can raise the real defense of forgery as against both banks.

As to the claim that there was unjust enrichment on the part of Producers Bank, the same is correct. Allied
correctly claims in its petition that Producers Bank should reimburse Allied for whatever judgment that may be
rendered against it pursuant to Art. 22 of the Civil Code, which provides: Every person who through an act of
performance by another, or any other means, acquires or comes into possession of something at the expense
of the latter without just cause or legal ground, shall return the same to him.

In a whole lot of cases, we ruled that [t]here is unjust enrichment when a person unjustly retains a benefit to
the loss of another, or when a person retains money or property of another against the fundamental principles
of justice, equity and good conscience.

In the instant case, Lim Sio Wans money market placement in Allied Bank was pre-terminated and withdrawn
without her consent. Moreover, the proceeds of the placement were deposited in Producers Banks account in
Metrobank without any justification. In other words, there is no reason that the proceeds of Lim Sio Wans

NEGO SEC 184- 198

placement should be deposited in FCCs account purportedly as payment for FCCs money market placement
and interest in Producers Bank. With such payment, Producers Banks indebtedness to FCC was extinguished,
thereby benefitting the former. Clearly, Producers Bank was unjustly enriched at the expense of Lim Sio Wan.
Based on the facts and circumstances of the case, Producers Bank should reimburse Allied and Metrobank for
the amounts the two latter banks are ordered to pay Lim Sio Wan.



14. FAR EAST V. GOLD PALACE JEWELLERY REPRESENTED BY JUDY LAND, JULIE YANG GO AND KHO SOON
HUAT JOBEN LEX
Emergency Recit:
Samuel Tagoe - drawer ; Gold Palace payee ; Far East Bank collecting bank ; Land Bank (LBP) drawee bank
Samuel Tagoe bought jewelry from Gold Palace. He offered a Foreign Draft. It was cleared by LBP. Gold
Palaces account with Far East was credited. Thereafter, it was found that the Draft was materially altered. Far
East reimbursed what LBP paid. It seeks to recover from Gold Palace. The CA and SC ruled in favor of Gold
Palace. Gold Palace was not a participant in the alteration of the draft, was not negligent, and was a holder in
due course--it received the draft complete and regular on its face, before it became overdue and without
notice of any dishonor, in good faith and for value, and absent any knowledge of any infirmity in the
[37]
instrument or defect in the title of the person negotiating it. Having relied on the drawee bank's clearance
and payment of the draft and not being negligent (it delivered the purchased jewelry only when the draft was
cleared and paid), respondent is amply protected by the said Section 62. Far East could not debit the account
of Gold Palace. Its remedy under the law is not against Gold Palace but against the drawee-bank (LBP) or the
person responsible for the alteration.

[G.R. No. 168274, August 20, 2008]
NACHURA, J.:

I. FACTS

Samuel Tagoe, purchased from Gold Palace Jewellery Co.'s (Gold Palace's) store at SM-North EDSA
[3]
several pieces of jewelry valued at P258,000.00. In payment of the same, he offered Foreign Draft
issued by the United Overseas Bank (Malaysia), addressed to the Land Bank of the Philippines, Manila
[4]
(LBP), and payable to the company for P380,000.00.

Before receiving the draft, Judy Yang, the assistant general manager of Gold Palace, inquired from Far
East Bank & Trust Company's (Far East's) SM North EDSA Branch the nature of the draft. The teller
informed her that the same was similar to a manager's check, but advised her not to release the
pieces of jewelry until the draft had been cleared. Following the bank's advice, Yang issued Cash
Invoice to the foreigner, asked him to come back, and informed him that the pieces of jewelry would

be released when the draft had already been cleared. Julie Yang-Go, the manager of Gold Palace,
consequently deposited the draft in the company's account with the Far East branch.

When Far East, the collecting bank, presented the draft for clearing to LBP, the drawee bank, the
latter cleared the same. UOB's account with LBP was debited, and Gold Palace's account with Far East
[11]
was credited with the amount stated in the draft.

NEGO SEC 184- 198

The foreigner eventually returned to respondent's store to claim the purchased goods. After
ascertaining that the draft had been cleared, respondent Yang released the pieces of jewelry to
Samuel Tagoe; and because the amount in the draft was more than the value of the goods purchased,

she issued, as his change, Far East Check for P122,000.00. This check was later presented for
[14]
encashment and was, in fact, paid by the said bank.

Three weeks after, LBP informed Far East that the amount in Foreign Draft had been materially
altered from P300.00 to P380,000.00 and that it was returning the same. The material alteration was
discovered by UOB after LBP had informed it that its funds were being depleted following the
encashment of the subject draft. Intending to debit the amount from respondent's account, Far East
subsequently refunded the P380,000.00 earlier paid by LBP.

Gold Palace, in the meantime, had already utilized portions of the amount. Thus as the outstanding
balance of its account was already inadequate, Far East was able to debit only P168,053.36, but this
[18]
was done without a prior written notice to the account holder. Far East only notified by phone the
[19]
representatives of the respondent company.

Far East demanded from respondents the payment of P211,946.64 or the difference between the
amount in the materially altered draft and the amount debited from the respondent company's
account

Far East filed a case in the RTC

Respondents specifically denied the material allegations in the complaint and interposed as a defense
that the subject foreign draft having been cleared and the respondent not being the party who made
the material alteration.

RTC ruled in favor of Far East. The trial court ruled that, on the basis of its warranties as a general
indorser, Gold Palace was liable to Far East.

CA, reversed the ruling of the trial court and awarded respondents' counterclaim. It ruled in the main
that Far East failed to undergo the proceedings on the protest of the foreign draft or to notify Gold
Palace of the draft's dishonor; thus, Far East could not charge Gold Palace on its secondary liability as
[27]
an indorser. The appellate court further ruled that the drawee bank had cleared the check, and its
remedy should be against the party responsible for the alteration. Considering that, in this case, Gold
[28]
Palace neither altered the draft nor knew of the alteration, it could not be held liable. The
dispositive portion of the CA decision reads:

Issue
Whether or not Far East could debit Gold Palaces account
Held:
We affirm the ruling of the appellate court to the extent that Far East could not debit the account of Gold
Palace, and for doing so, it must return what it had erroneously taken. Far East's remedy under the law is not
against Gold Palace but against the drawee-bank (LBP) or the person responsible for the alteration.

Ratio:

NEGO SEC 184- 198

NIL explicitly provides that the acceptor, by accepting the instrument, engages that he will pay it
[33]
according to the tenor of his acceptance. This provision applies with equal force in case the drawee
pays a bill without having previously accepted it. His actual payment of the amount in the check
implies not only his assent to the order of the drawer and a recognition of his corresponding
[34]
obligation to pay the aforementioned sum, but also, his clear compliance with that obligation.
Actual payment by the drawee is greater than his acceptance, which is merely a promise in writing to
[35]
pay. The payment of a check includes its acceptance.

The drawee bank cleared and paid the subject foreign draft and forwarded the amount thereof to the
collecting bank. The latter then credited to Gold Palace's account the payment it received. Following
the plain language of the law, the drawee, by the said payment, recognized and complied with its
obligation to pay in accordance with the tenor of his acceptance. The tenor of the acceptance is
[36]
determined by the terms of the bill as it is when the drawee accepts. Stated simply, LBP was liable
on its payment of the check according to the tenor of the check at the time of payment, which was
the raised amount.

Because of that engagement, LBP could no longer repudiate the payment it erroneously made to a
due course holder. We note at this point that Gold Palace was not a participant in the alteration of
the draft, was not negligent, and was a holder in due course--it received the draft complete and
regular on its face, before it became overdue and without notice of any dishonor, in good faith and
for value, and absent any knowledge of any infirmity in the instrument or defect in the title of the
[37]
person negotiating it. Having relied on the drawee bank's clearance and payment of the draft and
not being negligent (it delivered the purchased jewelry only when the draft was cleared and paid),
respondent is amply protected by the said Section 62.

The drawee bank, in most cases, is in a better position, compared to the holder, to verify with the
drawer the matters stated in the instrument. As we have observed in this case, were it not for LBP's
communication with the drawer that its account in the Philippines was being depleted after the
subject foreign draft had been encashed, then, the alteration would not have been discovered.

Thus, considering that, in this case, Gold Palace is protected by Section 62 of the NIL, its collecting
agent, Far East, should not have debited the money paid by the drawee bank from respondent
company's account. When Gold Palace deposited the check with Far East, the latter, under the terms
of the deposit and the provisions of the NIL, became an agent of the former for the collection of the
[44]
amount in the draft. The subsequent payment by the drawee bank and the collection of the
amount by the collecting bank closed the transaction insofar as the drawee and the holder of the
[45]
check or his agent are concerned, converted the check into a mere voucher, and, as already
discussed, foreclosed the recovery by the drawee of the amount paid.

As the transaction in this case had been closed and the principal-agent relationship between the
payee and the collecting bank had already ceased, the latter in returning the amount to the drawee
bank was already acting on its own and should now be responsible for its own actions. Neither can
petitioner be considered to have acted as the representative of the drawee bank when it debited
respondent's account, because, as already explained, the drawee bank had no right to recover what it
paid. Likewise, Far East cannot invoke the warranty of the payee/depositor who indorsed the
instrument for collection to shift the burden it brought upon itself. This is precisely because the said
indorsement is only for purposes of collection which, under Section 36 of the NIL, is a restrictive
[47]
indorsement. It did not in any way transfer the title of the instrument to the collecting bank. Far
East did not own the draft, it merely presented it for payment. Considering that the warranties of a

NEGO SEC 184- 198

general indorser as provided in Section 66 of the NIL are based upon a transfer of title and are
[48]
available only to holders in due course, these warranties did not attach to the indorsement for
deposit and collection made by Gold Palace to Far East. Without any legal right to do so, the collecting
bank, therefore, could not debit respondent's account for the amount it refunded to the drawee
bank.


15. SECURITY BANK V. RCBC JOBEN

EMERGENCY RECIT:
A managers check by SBTC was issued for the amount of P8.0 million to GCDC as proceeds of a loan granted to
the latter. RCBC honored it and allowed CMC to withdraw the same. GCDC issued a stop payment order to
SBTC alleging that the check was issued to a 3rd person by mistake, and SBTC dishonored the check and
returned it to RCBC. RCBC filed a complaint in the CFI against SBTC. The complaint sought for the the payment
of 50% of the value of the check as the amount agreed upon by both banks to be temporarily distributed while
pending resolution of the case. The RTC ruled in favor of RCBC, and SBTC was ordered to pay P4.0 million. The
CA affirmed the RTC decision but modified to include 6% p.a. interest. A managers check is deemed to have
been accepted b the bank that certified it. As the Banks own check, it becomes the primary obligation of the
bank and is accepted in advance by the act of its issuance. RCBC, in immediately crediting the amount of P8.0
million the account, relied on the integrity and honor of the check as it is regarded in commercial transactions.
SBTC in drawing the instrument, it admits the capacity and existence of the payee and engages that the
instrument will be accepted or paid or both, on due presentment. SBTC is liable to pay P4.0 million and
interests, as the check is not just an ordinary check, but is a managers check. A managers check is one drawn
by a banks manager upon the bank itself. It stands on the same footing as a certified.

FACTS:
Before us are opposing parties petitions for review of the Decision of the CA.

Security Bank and Trust Company (SBTC) issued a managers check for P8 million, payable to "CASH," as
proceeds of the loan granted to Guidon Construction and Development Corporation (GCDC). On the same day,
the P8-million check, along with other checks, was deposited by Continental Manufacturing Corporation (CMC)
with Rizal Commercial Banking Corporation (RCBC). Immediately, RCBC honored the P8-million check and
allowed CMC to withdraw the same.

On the next banking day, GCDC issued a "Stop Payment Order" to SBTC, claiming that the P8- million check was
released to a third party by mistake. Consequently, SBTC dishonored and returned the managers check to
RCBC. Thereafter, the check was returned back and forth between the two banks, resulting in automatic debits
and credits in each banks clearing balance.

NEGO SEC 184- 198

RCBC filed a complaint for damages against SBTC with the then CFI Rizal then was later transferred to the CFI
Makati. By way of a temporary arrangement pending resolution of the case, the P8-million check was equally
divided between, and credited to, RCBC and SBTC.

CFI Makati rendered a Decision in favor of RCBC. SBTC is to pay RCBC P4 million as actual damages. CA, during
appeal, added interest thereon at (6%) per annum covering RCBCs unearned income on interest computed
from the time of filing of the complaint to the date of finality of this Decision.

ISSUE:
(1) Is SBTC liable to RCBC for the remaining P4 million? YES
(2 - MINOR) Is SBTC liable to pay for lost interest income on the remaining P4 million, exemplary damages and
attorneys fees? NO, YES, YES

RATIO:
At the outset, it must be noted that the questioned check issued by SBTC is not just an ordinary check but a
managers check. A managers check is one drawn by a banks manager upon the bank itself. It stands on the
same footing as a certified check, which is deemed to have been accepted by the bank that certified it. As the
banks own check, a managers check becomes the primary obligation of the bank and is accepted in advance
by the act of its issuance.

In this case, RCBC, in immediately crediting the amount of P8 million to CMCs account, relied on the integrity
and honor of the check as it is regarded in commercial transactions. Where the questioned check, which was
payable to "Cash," appeared regular on its face, and the bank found nothing unusual in the transaction, as the
drawer usually issued checks in big amounts made payable to cash, RCBC cannot be faulted in paying the value
of the questioned check.

In our considered view, SBTC cannot escape liability by invoking Monetary Board Resolution No. 2202
prohibiting drawings against uncollected deposits. For we must point out that the Central Bank at that time
issued a Memorandum, which interpreted said Monetary Board Resolution No. 2202 - that banks were given
the discretion to allow immediate drawings on uncollected deposits of managers checks, among others.
Consequently, RCBC, in allowing the immediate withdrawal against the subject managers check, only
exercised a prerogative expressly granted to it by the Monetary Board.

SBTCs liability as drawer remains the same by drawing the instrument, it 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.

NEGO SEC 184- 198

Interest and damages
Concerning RCBCs claim for lost interest income on the remaining P4 million, this is already covered by the
amount of damages in the form of legal interest of 6%, based on Article 2200 and 2209 of the Civil Code of the
Philippines, as awarded by the Court of Appeals in its decision.

In addition to the above-mentioned award of compensatory damages, we also find merit in the need to award
exemplary damages in order to set an example for the public good. In this connection, it is important that
banks should guard against injury attributable to negligence or bad faith on its part. As repeatedly emphasized,
since the banking business is impressed with public interest, the trust and confidence of the public in it is of
paramount importance. Consequently, the highest degree of diligence is expected, and high standards of
integrity and performance are required of it. SBTC having failed in this respect, the award of exemplary
damages to RCBC in the amount of P50,000.00 is warranted.

WHEREFORE, the assailed Decision dated March 29, 2005 and Resolution dated December 12, 2005 of the
Court of Appeals in CA-G.R. CV No. 67387 is hereby AFFIRMED with MODIFICATION. Security Bank and Trust
Company is ordered to pay Rizal Commercial Banking Corporation: (1) the remaining P4,000,000.00, with
legal interest thereon at six percent (6%) per annum from the time of filing of the complaint on February 13,
1981 to the date of finality of this Decision; (2) exemplary damages of P50,000.00; and (3) attorneys fees of
P25,000.00.

16. BANK OF AMERICA V. PHIL RACING JED

FACTS:
-PRCI maintains account of Bank of America.

-The authorized joint signatories with respect to said Current Account: were plaintiff-appellees President
(Antonia Reyes) and Vice President for Finance (Gregorio Reyes).

-On or about the 2nd week of December 1988, the President and Vice President of plaintiff-appellee
corporation were scheduled to go out of the country. In order not to disrupt operations in their absence, they
pre-signed several checks.

-These checks were entrusted to the accountant with instruction to make use of the same as the need arose.
The internal arrangement was, in the event there was need to make use of the checks, the accountant would
prepare the corresponding voucher and thereafter complete the entries on the pre-signed checks.

-It turned out that on December 16, 1988, a John Doe presented to BA for encashment a couple of
corporations checks with the indicated value of P110, 000.00 each. The 2 checks had similar entries with
similar infirmities and irregularities.

NEGO SEC 184- 198

-On the space where the name of the payee should be indicated (Pay To The Order Of) the following 2-line
entries were instead typewritten: on the upper line was the word "CASH" while the lower line had the
following typewritten words, viz: "ONE HUNDRED TEN THOUSAND PESOS ONLY."

-Despite the highly irregular entries on the face of the checks, BA encashed said checks. The checks appeared
to have come into the hands of an employee of PRCI (one Clarita Mesina who was subsequently criminally
charged for qualified theft) who eventually completed without authority the entries on the pre-signed checks.

-PRCIs demand for defendant-appellant to pay fell on deaf ears hence the complaint. After due proceedings,
the trial court rendered a Decision in favor of PRCI. BA appealed the aforesaid trial court Decision to the CA
which, however, affirmed said decision in toto in its July 16, 2001 Decision. Petitioners Motion for
Reconsideration of the CA Decision was subsequently denied, hence this instant petition.

ISSUES:
W/N CA was correct in holding BA liable. CORRECT!!
HELD:
-There is no dispute that the signatures on subject check were genuine (joint signatures). There was also no
material alteration. However, there were irregularities found that should have alerted the petitioners.

-It is well-settled that banks are engaged in a business impressed with public interest, and it is their duty to
protect in return their many clients and depositors who transact business with them. (extraordinary
diligence required.

-Respondents witness testified that for checks in amounts greater than (P20, 000.00) it is the companys
practice to ensure that the payee is indicated by name in the check.

-THE PROXIMATE CAUSE WAS THE PETITIONER BANK BUT PRCI SHOULD ALSO SHARE FOR CONTRIBUTING TO
WRONGFUL ENCASHMET.

-An allocation of 60% of the actual damages involved in this case (represented by the amount of the checks
with legal interest) to petitioner is proper under the premises. Respondent should, in light of its contributory
negligence, bear forty percent (40%) of its own loss.

-PRCI was negligent in pre-signing blank checks, the former had the last clear chance to avoid the loss
(doctrine of last clear chance).

To reiterate, petitioners own operations manager admitted that they could have called up the client for
verification or confirmation before honoring the dubious checks. Verily, petitioner had the final opportunity to
avert the injury that befell the respondent. Failing to make the necessary verification due to the volume of
banking transactions on that particular day is a flimsy and unacceptable excuse.

-Art. 2179. When the plaintiffs own negligence was the immediate and proximate cause of his injury, he
cannot recover damages. But if his negligence was only contributory, the immediate and proximate cause of
the injury being the defendants lack of due care, the plaintiff may recover damages, but the courts shall
mitigate the damages to be awarded.
-Respondents practice of signing checks in blank whenever its authorized bank signatories would travel
abroad was a dangerous policy;

NEGO SEC 184- 198

-We also cannot ignore the fact that the person who stole the pre-signed checks subject of this case from
respondents accountant turned out to be another employee, purportedly a clerk in respondents accounting
department. As the employer of the "thief," respondent supposedly had control and supervision over its own
employee. This gives the Court more reason to allocate part of the loss to respondent.

17. BANK OF AMERICA V. ASSCOIAEED CITIZENS BANK - JECH

Emergency Recit:
MILLER assigned its trade receivables in favor of BA-FINANCE via a DEED OF ASSIGNMENT
BA-FINANCE, in consideration for such assignment, issued 4 CROSSED CHECKs (FOR PAYEEs
ACCOUNT ONLY) in favor of MILLER
o Checks were drawn against BANK OF AMERICA
ROBERT CHING received the checks for MILLER and deposited it in his PERSONAL ACCOUNT in
ASSOCIATED BANK
ASSOCIATED BANK indorsed the check for clearing and eventually, BANK OF AMERICA paid the
amount of the check 741K
Later, MILLER failed to deliver the proceeds of the receivables to BA-FINANCE
BA-FINANCE filed a collection suit, impleading CHING, MILLER, and BANK OF AMERICA
SC: BANK OF AMERICA, as drawee bank, must return the amount to the account of BA-FINANCE, as
drawer
o BANK OF AMERICA was negligent in allowing CHING to encash the check when he wasnt the
payee named therein
ASSOCIATED BANK, as collecting bank, is liable to BANK OF AMERICA, as the former is considered a
general indorser, which was also negligent in allowing CHING to encash the check, despite its being
crossed
CHING is liable to ASSOCIATED BANK on the principle of unjust enrichment

Facts:
BA-FINANCE CORPORATION (BA) entered into a transaction with MILLER OFFSET PRESS, INC.
(MILLER), through MILLERs authorized representatives:
o Uy Kiat Chung
o Ching Uy Seng (aka ROBERT CHING)
o Uy Chung Guan Seng
BA-FINANCE granted MILLER a CREDIT LINE facility, through which MILLER could ASSIGN or DISCOUNT
its trade receivables with BA
MILLER discounted and assigned several trade receivables to BA by executing DEEDS OF ASSIGNMENT
in its favor.
In consideration of the assignment, BA issued four checks with a total of 741,227.18 payable to the
Order of Miller Offset Press, Inc. with the notation For Payees Account Only.
o Drawer: BA-FINANCE
o Payee: MILLER
o Drawee-Bank: BANK OF AMERICA
o Collecting-Bank: ASSOCIATED CITIZENS BANK
o Nature/Character: CROSSED CHECK (FOR PAYEES ACCOUNT ONLY)
The 4 checks were depostited by CHING in ASSOCIATED CITIZENS BANK in a joint bank account under
the names of Ching Uy Seng (ROBERT CHING) and Uy Chung Guan Seng
Collecting-ASSOCIATED sent the checks for clearing and stamped them with the notation:
o All prior endorsements and/or lack of endorsements guaranteed.

NEGO SEC 184- 198

Drawee-BANK OF AMERICA honored the checks and paid the proceeds to Collecting-ASSOCIATED
MILLER failed to deliver to BA the proceeds of the assigned trade receivable
BA filed a complaint against MILLER for the collection of the 741K, plus interest
o BA impleaded as party defendants: Chung, Seng, and Guan Seng
o BA also impleaded BANK OF AMERICA for allowing encashment and collection of the checks
by person/s other than the payee named thereon
MILLER, Chung, and Guan Seng filed a cross-claim against ROBERT CHING, wherein the former denied
having received the amount covered by the 4 checks
BANK OF AMERICA filed a third-party complaint against ASSOCIATED
ASSOCIATED admitted that it received the 4 checks, but alleged that ROBERT CHING, being one of the
corporate officers of MILLER, was duly authorized to act for MILLER
RTC ordered:
o BANK OF AMERICA to pay BA-FINANCE
o ASSOCIATED BANK to reimburse BANK OF AMERICA
CA modified the ruling by adding:
o CHING UY SENG (ROBERT CHING) and UY CHUNG GUAN SENG to pay ASSOCIATED

Issue: Whether the Court of Appeals erred in rendering judgment finding (1) Bank of America liable
to pay BA-Finance the amount of the four checks; (2) Associated Bank liable to reimburse Bank of
America the amount of the four checks; and (3) Ching Uy Seng and/or Uy Chung Guan Seng liable to
pay Associated Bank the amount of the four checks? NOPE, COURT OF APPEALS IF
CORRECTAMUNDO!

Ratio:
(1) BANK OF AMERICA (drawee bank) is liable to BA-FINANCE (drawer)
Drawee bank: The bank on which a check is drawn
o The drawee bank has strict liability, based on the contract between the bank and its
customer (drawer), to pay the check only to (1) the payee or (2) the payees order.
o The drawers instructions are reflected on the face and by the terms of the check.
o [IMPORTANT] When the drawee bank pays a person other than the payee named on the
check, it does not comply with the terms of the check and violates its duty to charge the
drawers account only for properly payable items
A drawee should charge to the drawers accounts only the payables authorized by
the latter; otherwise, the drawee will be violating the instructions of the drawer
and shall be liable for the amount charged to the drawers account.
Crossed check: A check with two parallel lines in the upper left hand corner, which means that it (1)
could only be deposited and (2) could not be converted into cash
o The effect of crossing a check relates to the mode of payment, meaning that the drawer had
intended the check for deposit only by the rightful person, i.e., the payee named therein.
o Crossing may be special wherein between the two parallel lines is written the name of a
bank or a business institution, in which case the drawee should pay only with the
intervention of that bank or company; or
o Crossing may be general wherein between two parallel diagonal lines are written the
words and Co. or none at all, in which case the drawee should not encash the same but
merely accept the same for deposit.
The effects of crossing a check as follows:
o (A) the check may not be encashed but only deposited in the bank;
o (B) the check may be negotiated only once to one who has an account with a bank;

NEGO SEC 184- 198

(C) the act of crossing the check serves as a warning to the holder that the check has been
issued for a definite purpose so that he must inquire if he has received the check pursuant to
that purpose; otherwise, he is not a holder in due course
In this case, the four checks were drawn by BA and made payable to the Order of Miller Offset Press,
Inc.
o The checks were also crossed and issued For Payees Account Only.
o Clearly, the drawer intended the check for deposit only by Miller Offset Press, Inc. in the
MILLERs bank account.
o Thus, when a person other than Miller, i.e., Ching Uy Seng, a.k.a. Robert Ching, presented
and deposited the checks in his own personal account, and the drawee bank, BANK OF
AMERICA, paid the value of the checks and charged BAs account therefor, BANK OF
AMERICA is deemed to have violated the instructions of the drawer, and therefore, is liable
for the amount charged to the drawers account.
o

(2) ASSOCIATED BANK (collecting bank) is liable to BANK OF AMERICA (drawee bank)
Collecting bank: A bank where a check is deposited and which indorses the check upon presentment
with the drawee bank; considered an indorser
o Under Section 66 of the Negotiable Instruments Law, a (general) indorser warrants (1) that
the instrument is genuine and in all respects what it purports to be; (2) that he has good title
to it; that all prior parties had capacity to contract; and(3) that the instrument is at the time
of his endorsement valid and subsisting.
[IMPORTANT] In check transactions, the collecting bank or last indorser generally suffers the loss
because it has the duty to ascertain the genuineness of all prior endorsements
o This is because the considering that the act of presenting the check for payment to the
drawee is an assertion that the party making the presentment has done its duty to ascertain
the genuineness of the endorsements
In this case, when ASSOCIATED stamped the back of the four checks with the phrase all
prior endorsements and/or lack of endorsement guaranteed, ASSOCIATED had (1) treated
the checks as negotiable instruments and, accordingly, (2) assumed the warranty of an
indorser.
o The law imposes a duty of diligence on the collecting bank to scrutinize checks
deposited with it for the purpose of determining their genuineness and regularity.
o In presenting the checks for clearing and for payment, the collecting bank makes
an express guarantee on the validity of all prior endorsements.
o Without such warranty, drawee bank would not have paid on the checks.
Moreover, ASSOCIATED was also clearly negligent in disregarding established banking rules and
regulations by allowing the four checks to be presented by, and deposited in the personal bank
account of, a person who was not the payee named in the checks.
o The checks were issued to the Order of Miller Offset Press, Inc., but were deposited, and
paid by ASSOCIATED, to the personal joint account of Ching Uy Seng and Uy Chung Guan
Seng.
o It could not have escaped ASSOCIATEDs attention that the payee of the checks is a
corporation while the person who deposited the checks in his own account is an individual.
o Thus, when ASSOCIATED allowed its client to collect on crossed checks issued in the
name of another, it was guilty of negligence

(3) CHING UY SENG (CHING) and UY CHUNG GUAN SENG are liable to ASSOCIATED
It is well-settled that a person who had not given value for the money paid to him has no
right to retain the money he received.

NEGO SEC 184- 198

In this case, since Ching Uy Seng and/or Uy Chung Guan Seng received the proceeds of the
checks, AS THEY WERE DEPOSITED IN THEIR PERSONAL ACCOUNT IN ASSOCIATED BANK,
they should, therefore, be obliged to reimburse ASSOCIATED for the amount it has to pay to
BANK OF AMERICA
o No person should be allowed to unjustly enrich himself at the expense of another