1

G.R. No. 170325

Republic of the Philippines

SUPREME COURT
Manila

members, without the knowledge or consent of the latter. The PEMSLA checks issued for these
loans were then given to the spouses for rediscounting. The officers carried this out by forging
the indorsement of the named payees in the checks.

THIRD DIVISION

In return, the spouses issued their personal checks (Rodriguez checks) in the name of the
members and delivered the checks to an officer of PEMSLA. The PEMSLA checks, on the other
hand, were deposited by the spouses to their account.

September 26, 2008

PHILIPPINE NATIONAL BANK, Petitioner,

vs.
ERLANDO T. RODRIGUEZ and NORMA RODRIGUEZ, Respondents.
DECISION
REYES, R.T., J.:
WHEN the payee of the check is not intended to be the true recipient of its proceeds, is it
payable to order or bearer? What is the fictitious-payee rule and who is liable under it? Is there
any exception?
These questions seek answers in this petition for review on certiorari of the Amended
Decision1 of the Court of Appeals (CA) which affirmed with modification that of the Regional Trial
Court (RTC).2
The Facts
The facts as borne by the records are as follows:
Respondents-Spouses Erlando and Norma Rodriguez were clients of petitioner Philippine
National Bank (PNB), Amelia Avenue Branch, Cebu City. They maintained savings and
demand/checking accounts, namely, PNBig Demand Deposits (Checking/Current Account No.
810624-6 under the account name Erlando and/or Norma Rodriguez), and PNBig Demand
Deposit (Checking/Current Account No. 810480-4 under the account name Erlando T.
Rodriguez).
The spouses were engaged in the informal lending business. In line with their business, they
had a discounting3 arrangement with the Philnabank Employees Savings and Loan Association
(PEMSLA), an association of PNB employees. Naturally, PEMSLA was likewise a client of PNB
Amelia Avenue Branch. The association maintained current and savings accounts with petitioner
bank.
PEMSLA regularly granted loans to its members. Spouses Rodriguez would rediscount the
postdated checks issued to members whenever the association was short of funds. As was
customary, the spouses would replace the postdated checks with their own checks issued in the
name of the members.
It was PEMSLAs policy not to approve applications for loans of members with outstanding
debts. To subvert this policy, some PEMSLA officers devised a scheme to obtain additional loans
despite their outstanding loan accounts. They took out loans in the names of unknowing

Meanwhile, the Rodriguez checks were deposited directly by PEMSLA to its savings account
without any indorsement from the named payees. This was an irregular procedure made
possible through the facilitation of Edmundo Palermo, Jr., treasurer of PEMSLA and bank teller
in the PNB Branch. It appears that this became the usual practice for the parties.
For the period November 1998 to February 1999, the spouses issued sixty nine (69) checks, in
the total amount of P2,345,804.00. These were payable to forty seven (47) individual payees
who were all members of PEMSLA.4
Petitioner PNB eventually found out about these fraudulent acts. To put a stop to this scheme,
PNB closed the current account of PEMSLA. As a result, the PEMSLA checks deposited by the
spouses were returned or dishonored for the reason "Account Closed." The corresponding
Rodriguez checks, however, were deposited as usual to the PEMSLA savings account. The
amounts were duly debited from the Rodriguez account. Thus, because the PEMSLA checks
given as payment were returned, spouses Rodriguez incurred losses from the rediscounting
transactions.
RTC Disposition
Alarmed over the unexpected turn of events, the spouses Rodriguez filed a civil complaint for
damages against PEMSLA, the Multi-Purpose Cooperative of Philnabankers (MCP), and
petitioner PNB. They sought to recover the value of their checks that were deposited to the
PEMSLA savings account amounting to P2,345,804.00. The spouses contended that because
PNB credited the checks to the PEMSLA account even without indorsements, PNB violated its
contractual obligation to them as depositors. PNB paid the wrong payees, hence, it should bear
the loss.
PNB moved to dismiss the complaint on the ground of lack of cause of action. PNB argued that
the claim for damages should come from the payees of the checks, and not from spouses
Rodriguez. Since there was no demand from the said payees, the obligation should be
considered as discharged.
In an Order dated January 12, 2000, the RTC denied PNBs motion to dismiss.
In its Answer,5 PNB claimed it is not liable for the checks which it paid to the PEMSLA account
without any indorsement from the payees. The bank contended that spouses Rodriguez, the
makers, actually did not intend for the named payees to receive the proceeds of the checks.
Consequently, the payees were considered as "fictitious payees" as defined under the
Negotiable Instruments Law (NIL). Being checks made to fictitious payees which are bearer
instruments, the checks were negotiable by mere delivery. PNBs Answer included its crossclaim against its co-defendants PEMSLA and the MCP, praying that in the event that judgment is
rendered against the bank, the cross-defendants should be ordered to reimburse PNB the
amount it shall pay.

2
After trial, the RTC rendered judgment in favor of spouses Rodriguez (plaintiffs). It ruled that
PNB (defendant) is liable to return the value of the checks. All counterclaims and cross-claims
were dismissed. The dispositive portion of the RTC decision reads:
WHEREFORE, in view of the foregoing, the Court hereby renders judgment, as follows:
1. Defendant is hereby ordered to pay the plaintiffs the total amount of P2,345,804.00
or reinstate or restore the amount of P775,337.00 in the PNBig Demand Deposit
Checking/Current Account No. 810480-4 of Erlando T. Rodriguez, and the amount
of P1,570,467.00 in the PNBig Demand Deposit, Checking/Current Account No.
810624-6 of Erlando T. Rodriguez and/or Norma Rodriguez, plus legal rate of interest
thereon to be computed from the filing of this complaint until fully paid;
2. The defendant PNB is hereby ordered to pay the plaintiffs the following reasonable
amount of damages suffered by them taking into consideration the standing of the
plaintiffs being sugarcane planters, realtors, residential subdivision owners, and other
businesses:
(a) Consequential damages, unearned income in the amount
of P4,000,000.00, as a result of their having incurred great dificulty (sic)
especially in the residential subdivision business, which was not pushed
through and the contractor even threatened to file a case against the
plaintiffs;
(b) Moral damages in the amount of P1,000,000.00;
(c) Exemplary damages in the amount of P500,000.00;
(d) Attorneys fees in the amount of P150,000.00 considering that this case
does not involve very complicated issues; and for the

the rediscounted checks of the plaintiffs-appellees would be deposited in PEMSLAs account for
payment of the loans it has approved in exchange for PEMSLAs checks with the full value of the
said loans. This is the only obvious explanation as to why all the disputed sixty-nine (69) checks
were in the possession of PEMSLAs errand boy for presentment to the defendant-appellant that
led to this present controversy. It also appears that the teller who accepted the said checks was
PEMSLAs officer, and that such was a regular practice by the parties until the defendantappellant discovered the scam. The logical conclusion, therefore, is that the checks were never
meant to be paid to order, but instead, to PEMSLA. We thus find no breach of contract on the
part of the defendant-appellant.
According to plaintiff-appellee Erlando Rodriguez testimony, PEMSLA allegedly issued postdated checks to its qualified members who had applied for loans. However, because of
PEMSLAs insufficiency of funds, PEMSLA approached the plaintiffs-appellees for the latter to
issue rediscounted checks in favor of said applicant members. Based on the investigation of the
defendant-appellant, meanwhile, this arrangement allowed the plaintiffs-appellees to make a
profit by issuing rediscounted checks, while the officers of PEMSLA and other members would
be able to claim their loans, despite the fact that they were disqualified for one reason or
another. They were able to achieve this conspiracy by using other members who had loaned
lesser amounts of money or had not applied at all. x x x.8 (Emphasis added)
The CA found that the checks were bearer instruments, thus they do not require indorsement for
negotiation; and that spouses Rodriguez and PEMSLA conspired with each other to accomplish
this money-making scheme. The payees in the checks were "fictitious payees" because they
were not the intended payees at all.
The spouses Rodriguez moved for reconsideration. They argued, inter alia, that the checks on
their faces were unquestionably payable to order; and that PNB committed a breach of contract
when it paid the value of the checks to PEMSLA without indorsement from the payees. They
also argued that their cause of action is not only against PEMSLA but also against PNB to
recover the value of the checks.
On October 11, 2005, the CA reversed itself via an Amended Decision, the last paragraph and
fallo of which read:

(e) Costs of suit.

3. Other claims and counterclaims are hereby dismissed.6
CA Disposition
PNB appealed the decision of the trial court to the CA on the principal ground that the disputed
checks should be considered as payable to bearer and not to order.
In a Decision7 dated July 22, 2004, the CA reversed and set aside the RTC disposition. The CA
concluded that the checks were obviously meant by the spouses to be really paid to PEMSLA.
The court a quo declared:
We are not swayed by the contention of the plaintiffs-appellees (Spouses Rodriguez) that their
cause of action arose from the alleged breach of contract by the defendant-appellant (PNB)
when it paid the value of the checks to PEMSLA despite the checks being payable to order.
Rather, we are more convinced by the strong and credible evidence for the defendant-appellant
with regard to the plaintiffs-appellees and PEMSLAs business arrangement that the value of

In sum, we rule that the defendant-appellant PNB is liable to the plaintiffs-appellees Sps.
Rodriguez for the following:
1. Actual damages in the amount of P2,345,804 with interest at 6% per annum from
14 May 1999 until fully paid;
2. Moral damages in the amount of P200,000;
3. Attorneys fees in the amount of P100,000; and
4. Costs of suit.
WHEREFORE, in view of the foregoing premises, judgment is hereby rendered by Us
AFFIRMING WITH MODIFICATION the assailed decision rendered in Civil Case No. 99-10892,
as set forth in the immediately next preceding paragraph hereof, and SETTING ASIDE Our
original decision promulgated in this case on 22 July 2004.

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SO ORDERED.9

(b) The drawer or maker; or

The CA ruled that the checks were payable to order. According to the appellate court, PNB failed
to present sufficient proof to defeat the claim of the spouses Rodriguez that they really intended
the checks to be received by the specified payees. Thus, PNB is liable for the value of the
checks which it paid to PEMSLA without indorsements from the named payees. The award for
damages was deemed appropriate in view of the failure of PNB to treat the Rodriguez account
with the highest degree of care considering the fiduciary nature of their relationship, which
constrained respondents to seek legal action.

(c) The drawee; or

(d) Two or more payees jointly; or
(e) One or some of several payees; or
(f) The holder of an office for the time being.

Hence, the present recourse under Rule 45.

Issues
The issues may be compressed to whether the subject checks are payable to order or to bearer
and who bears the loss?
PNB argues anew that when the spouses Rodriguez issued the disputed checks, they did not
intend for the named payees to receive the proceeds. Thus, they are bearer instruments that
could be validly negotiated by mere delivery. Further, testimonial and documentary evidence
presented during trial amply proved that spouses Rodriguez and the officers of PEMSLA
conspired with each other to defraud the bank.

Where the instrument is payable to order, the payee must be named or otherwise indicated
therein with reasonable certainty.
SEC. 9. When payable to bearer. The instrument is payable to bearer
(a) When it is expressed to be so payable; or
(b) When it is payable to a person named therein or bearer; or
(c) When it is payable to the order of a fictitious or non-existing person, and such fact
is known to the person making it so payable; or

Our Ruling
(d) When the name of the payee does not purport to be the name of any person; or
Prefatorily, amendment of decisions is more acceptable than an erroneous judgment attaining
finality to the prejudice of innocent parties. A court discovering an erroneous judgment before it
becomes final may, motu proprio or upon motion of the parties, correct its judgment with the
singular objective of achieving justice for the litigants.10
However, a word of caution to lower courts, the CA in Cebu in this particular case, is in order.
The Court does not sanction careless disposition of cases by courts of justice. The highest
degree of diligence must go into the study of every controversy submitted for decision by
litigants. Every issue and factual detail must be closely scrutinized and analyzed, and all the
applicable laws judiciously studied, before the promulgation of every judgment by the court. Only
in this manner will errors in judgments be avoided.
Now to the core of the petition.
As a rule, when the payee is fictitious or not intended to be the true recipient of the proceeds,
the check is considered as a bearer instrument. A check is "a bill of exchange drawn on a bank
payable on demand."11 It is either an order or a bearer instrument. Sections 8 and 9 of the NIL
states:
SEC. 8. When payable to order. The instrument is payable to order where it is drawn payable
to the order of a specified person or to him or his order. It may be drawn payable to the order of

(a) A payee who is not maker, drawer, or drawee; or

(e) Where the only or last indorsement is an indorsement in blank.12 (Underscoring

supplied)
The distinction between bearer and order instruments lies in their manner of negotiation. Under
Section 30 of the NIL, an order instrument requires an indorsement from the payee or holder
before it may be validly negotiated. A bearer instrument, on the other hand, does not require an
indorsement to be validly negotiated. It is negotiable by mere delivery. The provision reads:
SEC. 30. What constitutes negotiation. An instrument is negotiated when it is transferred from
one person to another in such manner as to constitute the transferee the holder thereof. If
payable to bearer, it is negotiated by delivery; if payable to order, it is negotiated by the
indorsement of the holder completed by delivery.
A check that is payable to a specified payee is an order instrument. However, under Section 9(c)
of the NIL, a check payable to a specified payee may nevertheless be considered as a bearer
instrument if it is payable to the order of a fictitious or non-existing person, and such fact is
known to the person making it so payable. Thus, checks issued to "Prinsipe Abante" or "Si
Malakas at si Maganda," who are well-known characters in Philippine mythology, are bearer
instruments because the named payees are fictitious and non-existent.
We have yet to discuss a broader meaning of the term "fictitious" as used in the NIL. It is for this
reason that We look elsewhere for guidance. Court rulings in the United States are a logical
starting point since our law on negotiable instruments was directly lifted from the Uniform
Negotiable Instruments Law of the United States.13

4
A review of US jurisprudence yields that an actual, existing, and living payee may also be
"fictitious" if the maker of the check did not intend for the payee to in fact receive the proceeds of
the check. This usually occurs when the maker places a name of an existing payee on the check
for convenience or to cover up an illegal activity.14 Thus, a check made expressly payable to a
non-fictitious and existing person is not necessarily an order instrument. If the payee is not the
intended recipient of the proceeds of the check, the payee is considered a "fictitious" payee and
the check is a bearer instrument.
In a fictitious-payee situation, the drawee bank is absolved from liability and the drawer bears
the loss. When faced with a check payable to a fictitious payee, it is treated as a bearer
instrument that can be negotiated by delivery. The underlying theory is that one cannot expect a
fictitious payee to negotiate the check by placing his indorsement thereon. And since the maker
knew this limitation, he must have intended for the instrument to be negotiated by mere delivery.
Thus, in case of controversy, the drawer of the check will bear the loss. This rule is justified for
otherwise, it will be most convenient for the maker who desires to escape payment of the check
to always deny the validity of the indorsement. This despite the fact that the fictitious payee was
purposely named without any intention that the payee should receive the proceeds of the
check.15
16

The fictitious-payee rule is best illustrated in Mueller & Martin v. Liberty Insurance Bank. In the
said case, the corporation Mueller & Martin was defrauded by George L. Martin, one of its
authorized signatories. Martin drew seven checks payable to the German Savings Fund
Company Building Association (GSFCBA) amounting to $2,972.50 against the account of the
corporation without authority from the latter. Martin was also an officer of the GSFCBA but did
not have signing authority. At the back of the checks, Martin placed the rubber stamp of the
GSFCBA and signed his own name as indorsement. He then successfully drew the funds from
Liberty Insurance Bank for his own personal profit. When the corporation filed an action against
the bank to recover the amount of the checks, the claim was denied.
The US Supreme Court held in Mueller that when the person making the check so payable did
not intend for the specified payee to have any part in the transactions, the payee is considered
as a fictitious payee. The check is then considered as a bearer instrument to be validly
negotiated by mere delivery. Thus, the US Supreme Court held that Liberty Insurance Bank, as
drawee, was authorized to make payment to the bearer of the check, regardless of whether prior
indorsements were genuine or not.17
The more recent Getty Petroleum Corp. v. American Express Travel Related Services Company,
Inc.18 upheld the fictitious-payee rule. The rule protects the depositary bank and assigns the loss
to the drawer of the check who was in a better position to prevent the loss in the first place. Due
care is not even required from the drawee or depositary bank in accepting and paying the
checks. The effect is that a showing of negligence on the part of the depositary bank will not
defeat the protection that is derived from this rule.
However, there is a commercial bad faith exception to the fictitious-payee rule. A showing of
commercial bad faith on the part of the drawee bank, or any transferee of the check for that
matter, will work to strip it of this defense. The exception will cause it to bear the loss.
Commercial bad faith is present if the transferee of the check acts dishonestly, and is a party to
the fraudulent scheme. Said the US Supreme Court in Getty:
Consequently, a transferees lapse of wary vigilance, disregard of suspicious circumstances
which might have well induced a prudent banker to investigate and other permutations of
negligence are not relevant considerations under Section 3-405 x x x. Rather, there is a
"commercial bad faith" exception to UCC 3-405, applicable when the transferee "acts

dishonestly where it has actual knowledge of facts and circumstances that amount to bad faith,
thus itself becoming a participant in a fraudulent scheme. x x x Such a test finds support in the
text of the Code, which omits a standard of care requirement from UCC 3-405 but imposes on all
parties an obligation to act with "honesty in fact." x x x19 (Emphasis added)
Getty also laid the principle that the fictitious-payee rule extends protection even to non-bank
transferees of the checks.
In the case under review, the Rodriguez checks were payable to specified payees. It is unrefuted
that the 69 checks were payable to specific persons. Likewise, it is uncontroverted that the
payees were actual, existing, and living persons who were members of PEMSLA that had a
rediscounting arrangement with spouses Rodriguez.
What remains to be determined is if the payees, though existing persons, were "fictitious" in its
broader context.
For the fictitious-payee rule to be available as a defense, PNB must show that the makers did
not intend for the named payees to be part of the transaction involving the checks. At most, the
banks thesis shows that the payees did not have knowledge of the existence of the checks. This
lack of knowledge on the part of the payees, however, was not tantamount to a lack of intention
on the part of respondents-spouses that the payees would not receive the checks proceeds.
Considering that respondents-spouses were transacting with PEMSLA and not the individual
payees, it is understandable that they relied on the information given by the officers of PEMSLA
that the payees would be receiving the checks.
Verily, the subject checks are presumed order instruments. This is because, as found by both
lower courts, PNB failed to present sufficient evidence to defeat the claim of respondentsspouses that the named payees were the intended recipients of the checks proceeds. The bank
failed to satisfy a requisite condition of a fictitious-payee situation that the maker of the check
intended for the payee to have no interest in the transaction.
Because of a failure to show that the payees were "fictitious" in its broader sense, the fictitiouspayee rule does not apply. Thus, the checks are to be deemed payable to order. Consequently,
the drawee bank bears the loss.20
PNB was remiss in its duty as the drawee bank. It does not dispute the fact that its teller or
tellers accepted the 69 checks for deposit to the PEMSLA account even without any
indorsement from the named payees. It bears stressing that order instruments can only be
negotiated with a valid indorsement.
A bank that regularly processes checks that are neither payable to the customer nor duly
indorsed by the payee is apparently grossly negligent in its operations.21 This Court has
recognized the unique public interest possessed by the banking industry and the need for the
people to have full trust and confidence in their banks.22 For this reason, banks are minded to
treat their customers accounts with utmost care, confidence, and honesty.23
In a checking transaction, the drawee bank has the duty to verify the genuineness of the
signature of the drawer and to pay the check strictly in accordance with the drawers
instructions, i.e., to the named payee in the check. It 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 it shall be liable for the amount charged to the drawers account.24

5
In the case at bar, respondents-spouses were the banks depositors. The checks were drawn
against respondents-spouses accounts. PNB, as the drawee bank, had the responsibility to
ascertain the regularity of the indorsements, and the genuineness of the signatures on the
checks before accepting them for deposit. Lastly, PNB was obligated to pay the checks in strict
accordance with the instructions of the drawers. Petitioner miserably failed to discharge this
burden.
The checks were presented to PNB for deposit by a representative of PEMSLA absent any type
of indorsement, forged or otherwise. The facts clearly show that the bank did not pay the checks
in strict accordance with the instructions of the drawers, respondents-spouses. Instead, it paid
the values of the checks not to the named payees or their order, but to PEMSLA, a third party to
the transaction between the drawers and the payees.alf-ITC

To PNBs credit, it became involved in the controversial transaction not of its own volition but due
to the actions of some of its employees. Considering that moral damages must be understood to
be in concept of grants, not punitive or corrective in nature, We resolve to reduce the award of
moral damages to P50,000.00.29
WHEREFORE, the appealed Amended Decision is AFFIRMED with the MODIFICATION that the
award for moral damages is reduced to P50,000.00, and that this is without prejudice to
whatever civil, criminal, or administrative action PNB might take against PEMSLA, MPC, and the
employees involved.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila

Moreover, PNB was negligent in the selection and supervision of its employees. The
trustworthiness of bank employees is indispensable to maintain the stability of the banking
industry. Thus, banks are enjoined to be extra vigilant in the management and supervision of
their employees. In Bank of the Philippine Islands v. Court of Appeals,25 this Court cautioned
thus:
Banks handle daily transactions involving millions of pesos. By the very nature of their work the
degree of responsibility, care and trustworthiness expected of their employees and officials is far
greater than those of ordinary clerks and employees. For obvious reasons, the banks are
expected to exercise the highest degree of diligence in the selection and supervision of their
employees.26
PNBs tellers and officers, in violation of banking rules of procedure, permitted the invalid
deposits of checks to the PEMSLA account. Indeed, when it is the gross negligence of the bank
employees that caused the loss, the bank should be held liable.27
PNBs argument that there is no loss to compensate since no demand for payment has been
made by the payees must also fail. Damage was caused to respondents-spouses when the
PEMSLA checks they deposited were returned for the reason "Account Closed." These PEMSLA
checks were the corresponding payments to the Rodriguez checks. Since they could not encash
the PEMSLA checks, respondents-spouses were unable to collect payments for the amounts
they had advanced.
A bank that has been remiss in its duty must suffer the consequences of its negligence. Being
issued to named payees, PNB was duty-bound by law and by banking rules and procedure to
require that the checks be properly indorsed before accepting them for deposit and payment. In
fine, PNB should be held liable for the amounts of the checks.
One Last Note
We note that the RTC failed to thresh out the merits of PNBs cross-claim against its codefendants PEMSLA and MPC. The records are bereft of any pleading filed by these two
defendants in answer to the complaint of respondents-spouses and cross-claim of PNB. The
Rules expressly provide that failure to file an answer is a ground for a declaration that defendant
is in default.28 Yet, the RTC failed to sanction the failure of both PEMSLA and MPC to file
responsive pleadings. Verily, the RTC dismissal of PNBs cross-claim has no basis. Thus, this
judgment shall be without prejudice to whatever action the bank might take against its codefendants in the trial court.

SECOND DIVISION
G.R. No. 121413

January 29, 2001

PHILIPPINE COMMERCIAL INTERNATIONAL BANK (formerly INSULAR BANK OF ASIA

AND AMERICA),petitioner,
vs.
COURT OF APPEALS and FORD PHILIPPINES, INC. and CITIBANK, N.A., respondents.

G.R. No. 121479

January 29, 2001

FORD PHILIPPINES, INC., petitioner-plaintiff,

vs.
COURT OF APPEALS and CITIBANK, N.A. and PHILIPPINE COMMERCIAL
INTERNATIONAL BANK,respondents.

G.R. No. 128604

January 29, 2001

FORD PHILIPPINES, INC., petitioner,

vs.
CITIBANK, N.A., PHILIPPINE COMMERCIAL INTERNATIONAL BANK and COURT OF
APPEALS, respondents.
QUISUMBING, J.:
These consolidated petitions involve several fraudulently negotiated checks.

6
The original actions a quo were instituted by Ford Philippines to recover from the drawee bank,
CITIBANK, N.A. (Citibank) and collecting bank, Philippine Commercial International Bank
(PCIBank) [formerly Insular Bank of Asia and America], the value of several checks payable to
the Commissioner of Internal Revenue, which were embezzled allegedly by an organized
syndicate.1wphi1.nt
G.R. Nos. 121413 and 121479 are twin petitions for review of the March 27, 1995 Decision 1 of
the Court of Appeals in CA-G.R. CV No. 25017, entitled "Ford Philippines, Inc. vs. Citibank, N.A.
and Insular Bank of Asia and America (now Philipppine Commercial International Bank), and the
August 8, 1995 Resolution,2 ordering the collecting bank, Philippine Commercial International
Bank, to pay the amount of Citibank Check No. SN-04867.
In G.R. No. 128604, petitioner Ford Philippines assails the October 15, 1996 Decision 3 of the
Court of Appeals and its March 5, 1997 Resolution4 in CA-G.R. No. 28430 entitled "Ford
Philippines, Inc. vs. Citibank, N.A. and Philippine Commercial International Bank," affirming in
toto the judgment of the trial court holding the defendant drawee bank, Citibank, N.A., solely
liable to pay the amount of P12,163,298.10 as damages for the misapplied proceeds of the
plaintiff's Citibanl Check Numbers SN-10597 and 16508.
I. G.R. Nos. 121413 and 121479
The stipulated facts submitted by the parties as accepted by the Court of Appeals are as follows:
"On October 19, 1977, the plaintiff Ford drew and issued its Citibank Check No. SN04867 in the amount of P4,746,114.41, in favor of the Commissioner of Internal
Revenue as payment of plaintiff;s percentage or manufacturer's sales taxes for the
third quarter of 1977.
The aforesaid check was deposited with the degendant IBAA (now PCIBank) and was
subsequently cleared at the Central Bank. Upon presentment with the defendant
Citibank, the proceeds of the check was paid to IBAA as collecting or depository bank.
The proceeds of the same Citibank check of the plaintiff was never paid to or received
by the payee thereof, the Commissioner of Internal Revenue.
As a consequence, upon demand of the Bureau and/or Commissioner of Internal
Revenue, the plaintiff was compelled to make a second payment to the Bureau of
Internal Revenue of its percentage/manufacturers' sales taxes for the third quarter of
1977 and that said second payment of plaintiff in the amount of P4,746,114.41 was
duly received by the Bureau of Internal Revenue.
It is further admitted by defendant Citibank that during the time of the transactions in
question, plaintiff had been maintaining a checking account with defendant Citibank;
that Citibank Check No. SN-04867 which was drawn and issued by the plaintiff in
favor of the Commissioner of Internal Revenue was a crossed check in that, on its
face were two parallel lines and written in between said lines was the phrase "Payee's
Account Only"; and that defendant Citibank paid the full face value of the check in the
amount of P4,746,114.41 to the defendant IBAA.
It has been duly established that for the payment of plaintiff's percentage tax for the
last quarter of 1977, the Bureau of Internal Revenue issued Revenue Tax Receipt No.

18747002, dated October 20, 1977, designating therein in Muntinlupa, Metro Manila,
as the authorized agent bank of Metrobanl, Alabang branch to receive the tax
payment of the plaintiff.
On December 19, 1977, plaintiff's Citibank Check No. SN-04867, together with the
Revenue Tax Receipt No. 18747002, was deposited with defendant IBAA, through its
Ermita Branch. The latter accepted the check and sent it to the Central Clearing
House for clearing on the samd day, with the indorsement at the back "all prior
indorsements and/or lack of indorsements guaranteed." Thereafter, defendant IBAA
presented the check for payment to defendant Citibank on same date, December 19,
1977, and the latter paid the face value of the check in the amount of P4,746,114.41.
Consequently, the amount of P4,746,114.41 was debited in plaintiff's account with the
defendant Citibank and the check was returned to the plaintiff.
Upon verification, plaintiff discovered that its Citibank Check No. SN-04867 in the
amount of P4,746,114.41 was not paid to the Commissioner of Internal Revenue.
Hence, in separate letters dated October 26, 1979, addressed to the defendants, the
plaintiff notified the latter that in case it will be re-assessed by the BIR for the payment
of the taxes covered by the said checks, then plaintiff shall hold the defendants liable
for reimbursement of the face value of the same. Both defendants denied liability and
refused to pay.
In a letter dated February 28, 1980 by the Acting Commissioner of Internal Revenue
addressed to the plaintiff - supposed to be Exhibit "D", the latter was officially
informed, among others, that its check in the amount of P4, 746,114.41 was not paid
to the government or its authorized agent and instead encashed by unauthorized
persons, hence, plaintiff has to pay the said amount within fifteen days from receipt of
the letter. Upon advice of the plaintiff's lawyers, plaintiff on March 11, 1982, paid to the
Bureau of Internal Revenue, the amount of P4,746,114.41, representing payment of
plaintiff's percentage tax for the third quarter of 1977.
As a consequence of defendant's refusal to reimburse plaintiff of the payment it had
made for the second time to the BIR of its percentage taxes, plaintiff filed on January
20, 1983 its original complaint before this Court.
On December 24, 1985, defendant IBAA was merged with the Philippine Commercial
International Bank (PCI Bank) with the latter as the surviving entity.
Defendant Citibank maintains that; the payment it made of plaintiff's Citibank Check
No. SN-04867 in the amount of P4,746,114.41 "was in due course"; it merely relied on
the clearing stamp of the depository/collecting bank, the defendant IBAA that "all prior
indorsements and/or lack of indorsements guaranteed"; and the proximate cause of
plaintiff's injury is the gross negligence of defendant IBAA in indorsing the plaintiff's
Citibank check in question.
It is admitted that on December 19, 1977 when the proceeds of plaintiff's Citibank
Check No. SN-048867 was paid to defendant IBAA as collecting bank, plaintiff was
maintaining a checking account with defendant Citibank."5
Although it was not among the stipulated facts, an investigation by the National Bureau of
Investigation (NBI) revealed that Citibank Check No. SN-04867 was recalled by Godofredo
Rivera, the General Ledger Accountant of Ford. He purportedly needed to hold back the check

7
because there was an error in the computation of the tax due to the Bureau of Internal Revenue
(BIR). With Rivera's instruction, PCIBank replaced the check with two of its own Manager's
Checks (MCs). Alleged members of a syndicate later deposited the two MCs with the Pacific
Banking Corporation.
Ford, with leave of court, filed a third-party complaint before the trial court impleading Pacific
Banking Corporation (PBC) and Godofredo Rivera, as third party defendants. But the court
dismissed the complaint against PBC for lack of cause of action. The course likewise dismissed
the third-party complaint against Godofredo Rivera because he could not be served with
summons as the NBI declared him as a "fugitive from justice".

20, 1983, the date when the original complaint was filed until the amount is
fully paid;
3. Dismissing the counterclaims asserted by the defendants against the
plaintiff as well as that asserted by the cross-defendant against the crossclaimant, for lack of merits.
Costs against the defendant IBAA (now PCI Bank).
IT IS SO ORDERED."7

On June 15, 1989, the trial court rendered its decision, as follows:
"Premises considered, judgment is hereby rendered as follows:
"1. Ordering the defendants Citibank and IBAA (now PCI Bank), jointly and
severally, to pay the plaintiff the amount of P4,746,114.41 representing the
face value of plaintiff's Citibank Check No. SN-04867, with interest thereon
at the legal rate starting January 20, 1983, the date when the original
complaint was filed until the amount is fully paid, plus costs;
"2. On defendant Citibank's cross-claim: ordering the cross-defendant IBAA
(now PCI Bank) to reimburse defendant Citibank for whatever amount the
latter has paid or may pay to the plaintiff in accordance with next preceding
paragraph;
"3. The counterclaims asserted by the defendants against the plaintiff, as
well as that asserted by the cross-defendant against the cross-claimant are
dismissed, for lack of merits; and
"4. With costs against the defendants.
SO ORDERED."6
Not satisfied with the said decision, both defendants, Citibank and PCIBank, elevated their
respective petitions for review on certiorari to the Courts of Appeals. On March 27, 1995, the
appellate court issued its judgment as follows:
"WHEREFORE, in view of the foregoing, the court AFFIRMS the appealed decision
with modifications.
The court hereby renderes judgment:
1. Dismissing the complaint in Civil Case No. 49287 insofar as defendant
Citibank N.A. is concerned;
2. Ordering the defendant IBAA now PCI Bank to pay the plaintiff the
amount of P4,746,114.41 representing the face value of plaintiff's Citibank
Check No. SN-04867, with interest thereon at the legal rate starting January

PCI Bank moved to reconsider the above-quoted decision of the Court of Appeals, while Ford
filed a "Motion for Partial Reconsideration." Both motions were denied for lack of merit.
Separately, PCIBank and Ford filed before this Court, petitions for review by certiorari under
Rule 45.
In G.R. No. 121413, PCIBank seeks the reversal of the decision and resolution of the Twelfth
Division of the Court of Appeals contending that it merely acted on the instruction of Ford and
such casue of action had already prescribed.
PCIBank sets forth the following issues for consideration:
I. Did the respondent court err when, after finding that the petitioner acted on the
check drawn by respondent Ford on the said respondent's instructions, it nevertheless
found the petitioner liable to the said respondent for the full amount of the said check.
II. Did the respondent court err when it did not find prescription in favor of the
petitioner.8
In a counter move, Ford filed its petition docketed as G.R. No. 121479, questioning the same
decision and resolution of the Court of Appeals, and praying for the reinstatement in toto of the
decision of the trial court which found both PCIBank and Citibank jointly and severally liable for
the loss.
In G.R. No. 121479, appellant Ford presents the following propositions for consideration:
I. Respondent Citibank is liable to petitioner Ford considering that:
1. As drawee bank, respondent Citibank owes to petitioner Ford, as the
drawer of the subject check and a depositor of respondent Citibank, an
absolute and contractual duty to pay the proceeds of the subject check only
to the payee thereof, the Commissioner of Internal Revenue.
2. Respondent Citibank failed to observe its duty as banker with respect to
the subject check, which was crossed and payable to "Payee's Account
Only."

8
3. Respondent Citibank raises an issue for the first time on appeal; thus the
same should not be considered by the Honorable Court.

findings forced Ford to pay the BIR a new, while an action was filed against Citibank and
PCIBank for the recovery of the amount of Citibank Check Numbers SN-10597 and 16508.

4. As correctly held by the trial court, there is no evidence of gross

negligence on the part of petitioner Ford.9

The Regional Trial Court of Makati, Branch 57, which tried the case, made its findings on
the modus operandi of the syndicate, as follows:

II. PCI Bank is liable to petitioner Ford considering that:

1. There were no instructions from petitioner Ford to deliver the proceeds of
the subject check to a person other than the payee named therein, the
Commissioner of the Bureau of Internal Revenue; thus, PCIBank's only
obligation is to deliver the proceeds to the Commissioner of the Bureau of
Internal Revenue.10
2. PCIBank which affixed its indorsement on the subject check ("All prior
indorsement and/or lack of indorsement guaranteed"), is liable as collecting
bank.11
3. PCIBank is barred from raising issues of fact in the instant proceedings. 12
4. Petitioner Ford's cause of action had not prescribed.13
II. G.R. No. 128604
The same sysndicate apparently embezzled the proceeds of checks intended, this time, to settle
Ford's percentage taxes appertaining to the second quarter of 1978 and the first quarter of 1979.
The facts as narrated by the Court of Appeals are as follows:
Ford drew Citibank Check No. SN-10597 on July 19, 1978 in the amount of P5,851,706.37
representing the percentage tax due for the second quarter of 1978 payable to the
Commissioner of Internal Revenue. A BIR Revenue Tax Receipt No. 28645385 was issued for
the said purpose.
On April 20, 1979, Ford drew another Citibank Check No. SN-16508 in the amount of
P6,311,591.73, representing the payment of percentage tax for the first quarter of 1979 and
payable to the Commissioner of Internal Revenue. Again a BIR Revenue Tax Receipt No. A1697160 was issued for the said purpose.
Both checks were "crossed checks" and contain two diagonal lines on its upper corner between,
which were written the words "payable to the payee's account only."
The checks never reached the payee, CIR. Thus, in a letter dated February 28, 1980, the BIR,
Region 4-B, demanded for the said tax payments the corresponding periods above-mentioned.
As far as the BIR is concernced, the said two BIR Revenue Tax Receipts were considered "fake
and spurious". This anomaly was confirmed by the NBI upon the initiative of the BIR. The

"A certain Mr. Godofredo Rivera was employed by the plaintiff FORD as its General
Ledger Accountant. As such, he prepared the plaintiff's check marked Ex. 'A' [Citibank
Check No. Sn-10597] for payment to the BIR. Instead, however, fo delivering the
same of the payee, he passed on the check to a co-conspirator named Remberto
Castro who was a pro-manager of the San Andres Branch of PCIB.* In connivance
with one Winston Dulay, Castro himself subsequently opened a Checking Account in
the name of a fictitious person denominated as 'Reynaldo reyes' in the Meralco
Branch of PCIBank where Dulay works as Assistant Manager.
After an initial deposit of P100.00 to validate the account, Castro deposited a
worthless Bank of America Check in exactly the same amount as the first FORD check
(Exh. "A", P5,851,706.37) while this worthless check was coursed through PCIB's
main office enroute to the Central Bank for clearing, replaced this worthless check with
FORD's Exhibit 'A' and accordingly tampered the accompanying documents to cover
the replacement. As a result, Exhibit 'A' was cleared by defendant CITIBANK, and the
fictitious deposit account of 'Reynaldo Reyes' was credited at the PCIB Meralco
Branch with the total amount of the FORD check Exhibit 'A'. The same method was
again utilized by the syndicate in profiting from Exh. 'B' [Citibank Check No. SN16508] which was subsequently pilfered by Alexis Marindo, Rivera's Assistant at
FORD.
From this 'Reynaldo Reyes' account, Castro drew various checks distributing the
sahres of the other participating conspirators namely (1) CRISANTO BERNABE, the
mastermind who formulated the method for the embezzlement; (2) RODOLFO R. DE
LEON a customs broker who negotiated the initial contact between Bernabe, FORD's
Godofredo Rivera and PCIB's Remberto Castro; (3) JUAN VASTILLO who assisted de
Leon in the initial arrangements; (4) GODOFREDO RIVERA, FORD's accountant who
passed on the first check (Exhibit "A") to Castro; (5) REMERTO CASTRO, PCIB's promanager at San Andres who performed the switching of checks in the clearing
process and opened the fictitious Reynaldo Reyes account at the PCIB Meralco
Branch; (6) WINSTON DULAY, PCIB's Assistant Manager at its Meralco Branch, who
assisted Castro in switching the checks in the clearing process and facilitated the
opening of the fictitious Reynaldo Reyes' bank account; (7) ALEXIS MARINDO,
Rivera's Assistant at FORD, who gave the second check (Exh. "B") to Castro; (8)
ELEUTERIO JIMENEZ, BIR Collection Agent who provided the fake and spurious
revenue tax receipts to make it appear that the BIR had received FORD's tax
payments.
Several other persons and entities were utilized by the syndicate as conduits in the
disbursements of the proceeds of the two checks, but like the aforementioned
participants in the conspiracy, have not been impleaded in the present case. The
manner by which the said funds were distributed among them are traceable from the
record of checks drawn against the original "Reynaldo Reyes" account and indubitably
identify the parties who illegally benefited therefrom and readily indicate in what
amounts they did so."14

9
On December 9, 1988, Regional Trial Court of Makati, Branch 57, held drawee-bank, Citibank,
liable for the value of the two checks while adsolving PCIBank from any liability, disposing as
follows:
"WHEREFORE, judgment is hereby rendered sentencing defendant CITIBANK to
reimburse plaintiff FORD the total amount of P12,163,298.10 prayed for in its
complaint, with 6% interest thereon from date of first written demand until full
payment, plus P300,000.00 attorney's fees and expenses litigation, and to pay the
defendant, PCIB (on its counterclaim to crossclaim) the sum of P300,000.00 as
attorney's fees and costs of litigation, and pay the costs.
SO ORDERED."15
Both Ford and Citibank appealed to the Court of Appeals which affirmed, in toto, the decision of
the trial court. Hence, this petition.
Petitioner Ford prays that judgment be rendered setting aside the portion of the Court of Appeals
decision and its resolution dated March 5, 1997, with respect to the dismissal of the complaint
against PCIBank and holding Citibank solely responsible for the proceeds of Citibank Check
Numbers SN-10597 and 16508 for P5,851,706.73 and P6,311,591.73 respectively.
Ford avers that the Court of Appeals erred in dismissing the complaint against defendant
PCIBank considering that:
I. Defendant PCIBank was clearly negligent when it failed to exercise the diligence
required to be exercised by it as a banking insitution.
II. Defendant PCIBank clearly failed to observe the diligence required in the selection
and supervision of its officers and employees.
III. Defendant PCIBank was, due to its negligence, clearly liable for the loss or
damage resulting to the plaintiff Ford as a consequence of the substitution of the
check consistent with Section 5 of Central Bank Circular No. 580 series of 1977.
IV. Assuming arguedo that defedant PCIBank did not accept, endorse or negotiate in
due course the subject checks, it is liable, under Article 2154 of the Civil Code, to
return the money which it admits having received, and which was credited to it its
Central bank account.16
The main issue presented for our consideration by these petitions could be simplified as follows:
Has petitioner Ford the right to recover from the collecting bank (PCIBank) and the drawee bank
(Citibank) the value of the checks intended as payment to the Commissioner of Internal
Revenue? Or has Ford's cause of action already prescribed?
Note that in these cases, the checks were drawn against the drawee bank, but the title of the
person negotiating the same was allegedly defective because the instrument was obtained by
fraud and unlawful means, and the proceeds of the checks were not remitted to the payee. It
was established that instead of paying the checks to the CIR, for the settlement of the approprite
quarterly percentage taxes of Ford, the checks were diverted and encashed for the eventual

distribution among the mmbers of the syndicate. As to the unlawful negotiation of the check the
applicable law is Section 55 of the Negotiable Instruments Law (NIL), which provides:
"When title defective -- The title of a person who negotiates an instrument is defective
within the meaning of this Act when he obtained the instrument, or any signature
thereto, by fraud, duress, or fore and fear, or other unlawful means, or for an illegal
consideration, or when he negotiates it in breach of faith or under such circumstances
as amount to a fraud."
Pursuant to this provision, it is vital to show that the negotiation is made by the perpetator in
breach of faith amounting to fraud. The person negotiating the checks must have gone beyond
the authority given by his principal. If the principal could prove that there was no negligence in
the performance of his duties, he may set up the personal defense to escape liability and
recover from other parties who. Though their own negligence, alowed the commission of the
crime.
In this case, we note that the direct perpetrators of the offense, namely the embezzlers
belonging to a syndicate, are now fugitives from justice. They have, even if temporarily, escaped
liability for the embezzlement of millions of pesos. We are thus left only with the task of
determining who of the present parties before us must bear the burden of loss of these millions.
It all boils down to thequestion of liability based on the degree of negligence among the parties
concerned.
Foremost, we must resolve whether the injured party, Ford, is guilty of the "imputed contributory
negligence" that would defeat its claim for reimbursement, bearing ing mind that its employees,
Godofredo Rivera and Alexis Marindo, were among the members of the syndicate.
Citibank points out that Ford allowed its very own employee, Godofredo Rivera, to negotiate the
checks to his co-conspirators, instead of delivering them to the designated authorized collecting
bank (Metrobank-Alabang) of the payee, CIR. Citibank bewails the fact that Ford was remiss in
the supervision and control of its own employees, inasmuch as it only discovered the syndicate's
activities through the information given by the payee of the checks after an unreasonable period
of time.
PCIBank also blames Ford of negligence when it allegedly authorized Godofredo Rivera to
divert the proceeds of Citibank Check No. SN-04867, instead of using it to pay the BIR. As to the
subsequent run-around of unds of Citibank Check Nos. SN-10597 and 16508, PCIBank claims
that the proximate cause of the damge to Ford lies in its own officers and employees who carried
out the fradulent schemes and the transactions. These circumstances were not checked by
other officers of the company including its comptroller or internal auditor. PCIBank contends that
the inaction of Ford despite the enormity of the amount involved was a sheer negligence and
stated that, as between two innocent persons, one of whom must suffer the consequences of a
breach of trust, the one who made it possible, by his act of negligence, must bear the loss.
For its part, Ford denies any negligence in the performance of its duties. It avers that there was
no evidence presented before the trial court showing lack of diligence on the part of Ford. And,
citing the case of Gempesaw vs. Court of Appeals,17 Ford argues that even if there was a finding
therein that the drawer was negligent, the drawee bank was still ordered to pay damages.
Furthermore, Ford contends the Godofredo rivera was not authorized to make any
representation in its behalf, specifically, to divert the proceeds of the checks. It adds that

10
Citibank raised the issue of imputed negligence against Ford for the first time on appeal. Thus, it
should not be considered by this Court.

to Citibank for payment. Thereafter PCIBank, instead of remitting the proceeds to the CIR,
prepared two of its Manager's checks and enabled the syndicate to encash the same.

On this point, jurisprudence regarding the imputed negligence of employer in a master-servant

relationship is instructive. Since a master may be held for his servant's wrongful act, the law
imputes to the master the act of the servant, and if that act is negligent or wrongful and
proximately results in injury to a third person, the negligence or wrongful conduct is the
negligence or wrongful conduct of the master, for which he is liable.18 The general rule is that if
the master is injured by the negligence of a third person and by the concuring contributory
negligence of his own servant or agent, the latter's negligence is imputed to his superior and will
defeat the superior's action against the third person, asuming, of course that the contributory
negligence was the proximate cause of the injury of which complaint is made.19

On record, PCIBank failed to verify the authority of Mr. Rivera to negotiate the checks. The
neglect of PCIBank employees to verify whether his letter requesting for the replacement of the
Citibank Check No. SN-04867 was duly authorized, showed lack of care and prudence required
in the circumstances.

Accordingly, we need to determine whether or not the action of Godofredo Rivera, Ford's
General Ledger Accountant, and/or Alexis Marindo, his assistant, was the proximate cause of
the loss or damage. AS defined, proximate cause is that which, in the natural and continuous
sequence, unbroken by any efficient, intervening cause produces the injury and without the
result would not have occurred.20

Furthermore, it was admitted that PCIBank is authorized to collect the payment of taxpayers in
behalf of the BIR. As an agent of BIR, PCIBank is duty bound to consult its principal regarding
the unwarranted instructions given by the payor or its agent. As aptly stated by the trial court, to
wit:
"xxx. Since the questioned crossed check was deposited with IBAA [now PCIBank],
which claimed to be a depository/collecting bank of BIR, it has the responsibility to
make sure that the check in question is deposited in Payee's account only.
xxx

It appears that although the employees of Ford initiated the transactions attributable to an
organized syndicate, in our view, their actions were not the proximate cause of encashing the
checks payable to the CIR. The degree of Ford's negligence, if any, could not be characterized
as the proximate cause of the injury to the parties.
The Board of Directors of Ford, we note, did not confirm the request of Godofredo Rivera to
recall Citibank Check No. SN-04867. Rivera's instruction to replace the said check with
PCIBank's Manager's Check was not in theordinary course of business which could have
prompted PCIBank to validate the same.
As to the preparation of Citibank Checks Nos. SN-10597 and 16508, it was established that
these checks were made payable to the CIR. Both were crossed checks. These checks were
apparently turned around by Ford's emploees, who were acting on their own personal capacity.
Given these circumstances, the mere fact that the forgery was committed by a drawer-payor's
confidential employee or agent, who by virtue of his position had unusual facilities for
perpertrating the fraud and imposing the forged paper upon the bank, does notentitle the bank
toshift the loss to the drawer-payor, in the absence of some circumstance raising estoppel
against the drawer.21 This rule likewise applies to the checks fraudulently negotiated or diverted
by the confidential employees who hold them in their possession.
With respect to the negligence of PCIBank in the payment of the three checks involved,
separately, the trial courts found variations between the negotiation of Citibank Check No. SN04867 and the misapplication of total proceeds of Checks SN-10597 and 16508. Therefore, we
have to scrutinize, separately, PCIBank's share of negligence when the syndicate achieved its
ultimate agenda of stealing the proceeds of these checks.
G.R. Nos. 121413 and 121479
Citibank Check No. SN-04867 was deposited at PCIBank through its Ermita Branch. It was
coursed through the ordinary banking transaction, sent to Central Clearing with the indorsement
at the back "all prior indorsements and/or lack of indorsements guaranteed," and was presented

xxx

xxx

As agent of the BIR (the payee of the check), defendant IBAA should receive
instructions only from its principal BIR and not from any other person especially so
when that person is not known to the defendant. It is very imprudent on the part of the
defendant IBAA to just rely on the alleged telephone call of the one Godofredo Rivera
and in his signature considering that the plaintiff is not a client of the defendant IBAA."
It is a well-settled rule that the relationship between the payee or holder of commercial paper
and the bank to which it is sent for collection is, in the absence of an argreement to the contrary,
that of principal and agent.22 A bank which receives such paper for collection is the agent of the
payee or holder.23
Even considering arguendo, that the diversion of the amount of a check payable to the collecting
bank in behalf of the designated payee may be allowed, still such diversion must be properly
authorized by the payor. Otherwise stated, the diversion can be justified only by proof of
authority from the drawer, or that the drawer has clothed his agent with apparent authority to
receive the proceeds of such check.
Citibank further argues that PCI Bank's clearing stamp appearing at the back of the questioned
checks stating that ALL PRIOR INDORSEMENTS AND/OR LACK OF INDORSEMENTS
GURANTEED should render PCIBank liable because it made it pass through the clearing house
and therefore Citibank had no other option but to pay it. Thus, Citibank had no other option but
to pay it. Thus, Citibank assets that the proximate cause of Ford's injury is the gross negligence
of PCIBank. Since the questione dcrossed check was deposited with PCIBank, which claimed to
be a depository/collecting bank of the BIR, it had the responsibility to make sure that the check
in questions is deposited in Payee's account only.
Indeed, the crossing of the check with the phrase "Payee's Account Only," is a warning that the
check should be deposited only in the account of the CIR. Thus, it is the duty of the collecting
bank PCIBank to ascertain that the check be deposited in payee's account only. Therefore, it is
the collecting bank (PCIBank) which is bound to scruninize the check and to know its depositors
before it could make the clearing indorsement "all prior indorsements and/or lack of indorsement
guaranteed".

11
In Banco de Oro Savings and Mortgage Bank vs. Equitable Banking Corporation, 24 we ruled:
"Anent petitioner's liability on said instruments, this court is in full accord with the ruling
of the PCHC's Board of Directors that:
'In presenting the checks for clearing and for payment, the defendant made an
express guarantee on the validity of "all prior endorsements." Thus, stamped at the
back of the checks are the defedant's clear warranty: ALL PRIOR ENDORSEMENTS
AND/OR LACK OF ENDORSEMENTS GUARANTEED. Without such warranty,
plaintiff would not have paid on the checks.'
No amount of legal jargon can reverse the clear meaning of defendant's warranty. As
the warranty has proven to be false and inaccurate, the defendant is liable for any
damage arising out of the falsity of its representation."25
Lastly, banking business requires that the one who first cashes and negotiates the check must
take some percautions to learn whether or not it is genuine. And if the one cashing the check
through indifference or othe circumstance assists the forger in committing the fraud, he should
not be permitted to retain the proceeds of the check from the drawee whose sole fault was that it
did not discover the forgery or the defect in the title of the person negotiating the instrument
before paying the check. For this reason, a bank which cashes a check drawn upon another
bank, without requiring proof as to the identity of persons presenting it, or making inquiries with
regard to them, cannot hold the proceeds against the drawee when the proceeds of the checks
were afterwards diverted to the hands of a third party. In such cases the drawee bank has a right
to believe that the cashing bank (or the collecting bank) had, by the usual proper investigation,
satisfied itself of the authenticity of the negotiation of the checks. Thus, one who encashed a
check which had been forged or diverted and in turn received payment thereon from the drawee,
is guilty of negligence which proximately contributed to the success of the fraud practiced on the
drawee bank. The latter may recover from the holder the money paid on the check.26

their employment.28 A bank will be held liable for the negligence of its officers or agents when
acting within the course and scope of their employment. It may be liable for the tortuous acts of
its officers even as regards that species of tort of which malice is an essential element. In this
case, we find a situation where the PCIBank appears also to be the victim of the scheme
hatched by a syndicate in which its own management employees had particiapted.
The pro-manager of San Andres Branch of PCIBank, Remberto Castro, received Citibank Check
Numbers SN-10597 and 16508. He passed the checks to a co-conspirator, an Assistant
Manager of PCIBank's Meralco Branch, who helped Castro open a Checking account of a
fictitious person named "Reynaldo Reyes." Castro deposited a worthless Bank of America Check
in exactly the same amount of Ford checks. The syndicate tampered with the checks and
succeeded in replacing the worthless checks and the eventual encashment of Citibank Check
Nos. SN 10597 and 16508. The PCIBank Ptro-manager, Castro, and his co-conspirator
Assistant Manager apparently performed their activities using facilities in their official capacity or
authority but for their personal and private gain or benefit.
A bank holding out its officers and agents as worthy of confidence will not be permitted to profit
by the frauds these officers or agents were enabled to perpetrate in the apparent course of their
employment; nor will t be permitted to shirk its responsibility for such frauds, even though no
benefit may accrue to the bank therefrom. For the general rule is that a bank is liable for the
fraudulent acts or representations of an officer or agent acting within the course and apparent
scope of his employment or authority.29 And if an officer or employee of a bank, in his official
capacity, receives money to satisfy an evidence of indebetedness lodged with his bank for
collection, the bank is liable for his misappropriation of such sum.30
Moreover, as correctly pointed out by Ford, Section 531 of Central Bank Circular No. 580, Series
of 1977 provides that any theft affecting items in transit for clearing, shall be for the account of
sending bank, which in this case is PCIBank.
But in this case, responsibility for negligence does not lie on PCIBank's shoulders alone.

Having established that the collecting bank's negligence is the proximate cause of the loss, we
conclude that PCIBank is liable in the amount corresponding to the proceeds of Citibank Check
No. SN-04867.
G.R. No. 128604
The trial court and the Court of Appeals found that PCIBank had no official act in the ordinary
course of business that would attribute to it the case of the embezzlement of Citibank Check
Numbers SN-10597 and 16508, because PCIBank did not actually receive nor hold the two Ford
checks at all. The trial court held, thus:
"Neither is there any proof that defendant PCIBank contributed any official or
conscious participation in the process of the embezzlement. This Court is convinced
that the switching operation (involving the checks while in transit for "clearing") were
the clandestine or hidden actuations performed by the members of the syndicate in
their own personl, covert and private capacity and done without the knowledge of the
defendant PCIBank"27
In this case, there was no evidence presented confirming the conscious particiapation of
PCIBank in the embezzlement. As a general rule, however, a banking corporation is liable for the
wrongful or tortuous acts and declarations of its officers or agents within the course and scope of

The evidence on record shows that Citibank as drawee bank was likewise negligent in the
performance of its duties. Citibank failed to establish that its payment of Ford's checjs were
made in due course and legally in order. In its defense, Citibank claims the genuineness and
due execution of said checks, considering that Citibank (1) has no knowledge of any informity in
the issuance of the checks in question (2) coupled by the fact that said checks were sufficiently
funded and (3) the endorsement of the Payee or lack thereof was guaranteed by PCI Bank
(formerly IBAA), thus, it has the obligation to honor and pay the same.
For its part, Ford contends that Citibank as the drawee bank owes to Ford an absolute and
contractual duty to pay the proceeds of the subject check only to the payee thereof, the CIR.
Citing Section 6232 of the Negotiable Instruments Law, Ford argues that by accepting the
instrument, the acceptro which is Citibank engages that it will pay according to the tenor of its
acceptance, and that it will pay only to the payee, (the CIR), considering the fact that here the
check was crossed with annotation "Payees Account Only."
As ruled by the Court of Appeals, Citibank must likewise answer for the damages incurred by
Ford on Citibank Checks Numbers SN 10597 and 16508, because of the contractual relationship
existing between the two. Citibank, as the drawee bank breached its contractual obligation with
Ford and such degree of culpability contributed to the damage caused to the latter. On this
score, we agree with the respondent court's ruling.

12
Citibank should have scrutinized Citibank Check Numbers SN 10597 and 16508 before paying
the amount of the proceeds thereof to the collecting bank of the BIR. One thing is clear from the
record: the clearing stamps at the back of Citibank Check Nos. SN 10597 and 16508 do not
bear any initials. Citibank failed to notice and verify the absence of the clearing stamps. Had this
been duly examined, the switching of the worthless checks to Citibank Check Nos. 10597 and
16508 would have been discovered in time. For this reason, Citibank had indeed failed to
perform what was incumbent upon it, which is to ensure that the amount of the checks should be
paid only to its designated payee. The fact that the drawee bank did not discover the irregularity
seasonably, in our view, consitutes negligence in carrying out the bank's duty to its depositors.
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. 33
Thus, invoking the doctrine of comparative negligence, we are of the view that both PCIBank
and Citibank failed in their respective obligations and both were negligent in the selection and
supervision of their employees resulting in the encashment of Citibank Check Nos. SN 10597
AND 16508. Thus, we are constrained to hold them equally liable for the loss of the proceeds of
said checks issued by Ford in favor of the CIR.
Time and again, we have stressed that banking business is so impressed with public interest
where the trust and confidence of the public in general is of paramount umportance such that
the appropriate standard of diligence must be very high, if not the highest, degree of
diligence.34 A bank's liability as obligor is not merely vicarious but primary, wherein the defense
of exercise of due diligence in the selection and supervision of its employees is of no moment. 35

which it may in the exercise of due care and diligence find therein, serves to mitigate the banks'
liability by reducing the award of interest from twelve percent (12%) to six percent (6%) per
annum. As provided in Article 1172 of the Civil Code of the Philippines, respondibility arising from
negligence in the performance of every kind of obligation is also demandable, but such liability
may be regulated by the courts, according to the circumstances. In quasi-delicts, the
contributory negligence of the plaintiff shall reduce the damages that he may recover.42
WHEREFORE, the assailed Decision and Resolution of the Court of Appeals in CA-G.R. CV No.
25017 areAFFIRMED. PCIBank, know formerly as Insular Bank of Asia and America, id declared
solely responsible for the loss of the proceeds of Citibank Check No SN 04867 in the amount
P4,746,114.41, which shall be paid together with six percent (6%) interest thereon to Ford
Philippines Inc. from the date when the original complaint was filed until said amount is fully
paid.
However, the Decision and Resolution of the Court of Appeals in CA-G.R. No. 28430
are MODIFIED as follows: PCIBank and Citibank are adjudged liable for and must share the
loss, (concerning the proceeds of Citibank Check Numbers SN 10597 and 16508 totalling
P12,163,298.10) on a fifty-fifty ratio, and each bank is ORDEREDto pay Ford Philippines Inc.
P6,081,649.05, with six percent (6%) interest thereon, from the date the complaint was filed until
full payment of said amount.1wphi1.nt
Costs against Philippine Commercial International Bank and Citibank N.A.
SO ORDERED.

Banks handle daily transactions involving millions of pesos.36 By the very nature of their work the
degree of responsibility, care and trustworthiness expected of their employees and officials is far
greater than those of ordinary clerks and employees.37 Banks are expected to exercise the
highest degree of diligence in the selection and supervision of their employees. 38
On the issue of prescription, PCIBank claims that the action of Ford had prescribed because of
its inability to seek judicial relief seasonably, considering that the alleged negligent act took place
prior to December 19, 1977 but the relief was sought only in 1983, or seven years thereafter.
The statute of limitations begins to run when the bank gives the depositor notice of the payment,
which is ordinarily when the check is returned to the alleged drawer as a voucher with a
statement of his account,39 and an action upon a check is ordinarily governed by the statutory
period applicable to instruments in writing.40
Our laws on the matter provide that the action upon a written contract must be brought within ten
year from the time the right of action accrues.41 hence, the reckoning time for the prescriptive
period begins when the instrument was issued and the corresponding check was returned by the
bank to its depositor (normally a month thereafter). Applying the same rule, the cause of action
for the recovery of the proceeds of Citibank Check No. SN 04867 would normally be a month
after December 19, 1977, when Citibank paid the face value of the check in the amount of
P4,746,114.41. Since the original complaint for the cause of action was filed on January 20,
1984, barely six years had lapsed. Thus, we conclude that Ford's cause of action to recover the
amount of Citibank Check No. SN 04867 was seasonably filed within the period provided by law.
Finally, we also find thet Ford is not completely blameless in its failure to detect the fraud. Failure
on the part of the depositor to examine its passbook, statements of account, and cancelled
checks and to give notice within a reasonable time (or as required by statute) of any discrepancy

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 179952

December 4, 2009

METROPOLITAN BANK AND TRUST COMPANY (formerly ASIANBANK

CORPORATION), Petitioner,
vs.
BA FINANCE CORPORATION and MALAYAN INSURANCE CO., INC., Respondents.
DECISION
CARPIO MORALES, J.:
Lamberto Bitanga (Bitanga) obtained from respondent BA Finance Corporation (BA Finance)
a P329,2801 loan to secure which, he mortgaged his car to respondent BA Finance.2 The
mortgage contained the following stipulation:
The MORTGAGOR covenants and agrees that he/it will cause the property(ies) hereinabove
mortgaged to be insured against loss or damage by accident, theft and fire for a period of one
year from date hereof with an insurance company or companies acceptable to the
MORTGAGEE in an amount not less than the outstanding balance of mortgage obligations and

13
that he/it will make all loss, if any, under such policy or policies, payable to the MORTGAGEE or
its assigns as its interest may appear x x x.3 (emphasis and underscoring supplied)

to issue checks to both the insured and the financing company, held that Malayan Insurance
cannot be faulted for negligence for issuing the check payable to both BA Finance and Bitanga.

Bitanga thus had the mortgaged car insured by respondent Malayan Insurance Co., Inc.
(Malayan Insurance)4which issued a policy stipulating that, inter alia,

The trial court, holding that Asianbank was negligent in allowing Bitanga to deposit the check to
his account and to withdraw the proceeds thereof, without his co-payee BA Finance having
either indorsed it or authorized him to indorse it in its behalf,16 found Asianbank and Bitanga
jointly and severally liable to BA Finance following Section 41 of the Negotiable Instruments
Law and Associated Bank v. Court of Appeals.17

Loss, if any shall be payable to BA FINANCE CORP. as its interest may appear. It is hereby
expressly understood that this policy or any renewal thereof, shall not be cancelled without prior
notification and conformity by BA FINANCE CORPORATION.5 (emphasis and underscoring
supplied)
The car was stolen. On Bitangas claim, Malayan Insurance issued a check payable to the order
of "B.A. Finance Corporation and Lamberto Bitanga" for P224,500, drawn against China
Banking Corporation (China Bank). The check was crossed with the notation "For Deposit
Payees Account Only."6
Without the indorsement or authority of his co-payee BA Finance, Bitanga deposited the check
to his account with the Asianbank Corporation (Asianbank), now merged with herein petitioner
Metropolitan Bank and Trust Company (Metrobank). Bitanga subsequently withdrew the entire
proceeds of the check.
In the meantime, Bitangas loan became past due, but despite demands, he failed to settle it.
BA Finance eventually learned of the loss of the car and of Malayan Insurances issuance of a
crossed check payable to it and Bitanga, and of Bitangas depositing it in his account at
Asianbank and withdrawing the entire proceeds thereof.
BA Finance thereupon demanded the payment of the value of the check from Asianbank7 but to
no avail, prompting it to file a complaint before the Regional Trial Court (RTC) of Makati for sum
of money and damagesagainst Asianbank and Bitanga,8 alleging that, inter alia, it is entitled to
the entire proceeds of the check.
In its Answer with Counterclaim,9 Asianbank alleged that BA Finance "instituted [the] complaint
in bad faith to coerce [it] into paying the whole amount of the CHECK knowing fully well that its
rightful claim, if any, is against Malayan [Insurance]." 10
Asianbank thereafter filed a cross-claim against Bitanga,11 alleging that he fraudulently induced
its personnel to release to him the full amount of the check; and that on being later informed that
the entire amount of the check did not belong to Bitanga, it took steps to get in touch with him
but he had changed residence without leaving any forwarding address.12

Thus the trial court disposed:

WHEREFORE, premises considered, judgment is hereby rendered ordering defendants Asian
Bank Corporation and Lamberto Bitanga:
1) To pay plaintiff jointly and severally the sum of P224,500.00 with interest thereon at
the rate of 12% from September 25, 1992 until fully paid;
2) To pay plaintiff the sum of P50,000.00 as exemplary damages; P20,000.00 as
actual damages; P30,000.00 as attorneys fee; and
3) To pay the costs of suit.
Asianbanks and Bitangas [sic] counterclaims are dismissed.
The third party complaint of defendant/third party plaintiff against third-party defendant Malayan
Insurance, Co., Inc. is hereby dismissed. Asianbank is ordered to pay Malayan attorneys fee of
P50,000.00 and a per appearance fee of P500.00.
On the cross-claim of defendant Asianbank, co-defendant Lamberto Bitanga is ordered to
pay the former the amounts the latter is ordered to pay the plaintiff in Nos. 1, 2 and 3
above-mentioned.
SO ORDERED.18 (emphasis and underscoring supplied)
Before the Court of Appeals, Asianbank, in its Appellants Brief, submitted the following issues
for consideration:
3.01.1.1 Whether BA Finance has a cause of action against Asianbank.

And Asianbank filed a third-party complaint against Malayan Insurance,13 alleging that Malayan
Insurance was grossly negligent in issuing the check payable to both Bitanga and BA Finance
and delivering it to Bitanga without the consent of BA Finance.14

3.01.1.2 Assuming that BA Finance has a valid cause of action, may it claim from Asianbank
more than one-half of the value of the check considering that it is a mere co-payee or joint payee
of the check?

Bitanga was declared in default in Asianbanks cross-claim.15

3.01.1.3 Whether BA Finance is liable to Asianbank for actual and exemplary damages for
wrongfully bringing the case to court.

Branch 137 of the Makati RTC, finding that Malayan Insurance was not privy to the contract
between BA Finance and Bitanga, and noting the claim of Malayan Insurance that it is its policy

3.01.1.4 Whether Malayan is liable to Asianbank for reimbursement of any sum of money which
this Honorable Court may award to BA Finance in this case.19 (underscoring supplied)

14
And it proffered the following arguments:

V. x x x in awarding of exemplary damages even in the absence of moral, temperate,

liquidated or compensatory damages and a finding of fact that Asianbank acted in a
wanton, fraudulent, reckless, oppressive or malevolent manner.

A. BA Finance has no cause of action against Asianbank as it has no legal right and
title to the check considering that the check was not delivered to BA Finance. Hence,
BA Finance is not a holder thereof under the Negotiable Instruments Law.

xxxx

B. Asianbank, as collecting bank, is not liable to BA Finance as there was no privity of

contract between them.
C. Asianbank, as collecting bank, is not liable to BA Finance, considering that, as the
intermediary between the payee and the drawee Chinabank, it merely acted on the
instructions of drawee Chinabank to pay the amount of the check to Bitanga, hence,
the consequent damage to BA Finance was due to the negligence of Chinabank.
D. Malayans act of issuing and delivering the check solely to Bitanga in violation of
the "loss payee" clause in the Policy, is the proximate cause of the alleged damage to
BA Finance.
E. Assuming Asianbank is liable, BA Finance can claim only his proportionate interest
on the check as it is a joint payee thereof.

VII. x x x in dismissing Asianbanks counterclaim and Third Party complaint [against

Malayan Insurance].23(italics in the original; underscoring supplied)
Petitioner proffers the following arguments against the application of Associated Bank v. CA to
the case:
x x x [T]he rule established in the Associated Bank case has provided a speedier remedy for the
payee to recover from erring collecting banks despite the absence of delivery of the negotiable
instrument. However, the application of the rule demands careful consideration of the factual
settings and issues raised in the case x x x.
One of the relevant circumstances raised in Associated Bank is the existence of forgery or
unauthorized indorsement. x x x
xxxx

F. Bitanga alone is liable for the amount to BA Finance on the ground of unjust
enrichment or solutio indebiti.
G. BA Finance is liable to pay Asianbank actual and exemplary
damages.20 (underscoring supplied)
The appellate court, "summarizing" the errors attributed to the trial court by Asianbank to be
"whetherBA Finance has a cause of action against [it] even if the subject check had not been
delivered toBA Finance by the issuer itself," held in the affirmative and accordingly affirmed
the trial courts decision but deleted the award ofP20,000 as actual damages.21
Hence, the present Petition for Review on Certiorari22 filed by Metrobank (hereafter petitioner) to
which Asianbank was, as earlier stated, merged, faulting the appellate court
I. x x x in applying the case of Associated Bank v. Court of Appeals, in the absence of
factual similarity and of the legal relationships necessary for the application of the
desirable shortcut rule. x x x
II. x x x in not finding that x x x the general rule that the payee has no cause of
action against the collecting bank absent delivery to him must be applied.
III. x x x in finding that all the elements of a cause of action by BA Finance Corporation
against Asianbank Corporation are present.
IV. x x x in finding that Article 1208 of the Civil Code is not applicable.

In the case at bar, Bitanga is authorized to indorse the check as the drawer names him as one of
the payees. Moreover, his signature is not a forgery nor has he or anyone forged the signature
of the representative of BA Finance Corporation. No unauthorized indorsement appears on the
check.
xxxx
Absent the indispensable fact of forgery or unauthorized indorsement, the desirable shortcut rule
cannot be applied,24 (underscoring supplied)
The petition fails.
Section 41 of the Negotiable Instruments Law provides:
Where an instrument is payable to the order of two or more payees or indorsees who are not
partners, all must indorse unless the one indorsing has authority to indorse for the others.
(emphasis and underscoring supplied)
Bitanga alone endorsed the crossed check, and petitioner allowed the deposit and release of the
proceeds thereof, despite the absence of authority of Bitangas co-payee BA Finance to endorse
it on its behalf.25
Denying any irregularity in accepting the check, petitioner maintains that it followed normal
banking procedure. The testimony of Imelda Cruz, Asianbanks then accounting head, shows
otherwise, however, viz:

15
Q Now, could you be familiar with a particular policy of the bank with respect to checks
with joined (sic) payees?
A Yes, sir.
Q And what would be the particular policy of the bank regarding this transaction?
A The bank policy and procedure regarding the joint checks. Once it is
deposited to a single account, we are not accepting joint checks for single
account, depositing to a single account (sic).
Q What happened to the bank employee who allowed this particular transaction to
occur?
A Once the branch personnel, the bank personnel (sic) accepted it, he is liable.
Q What do you mean by the branch personnel being held liable?
A Because since (sic) the bank policy, we are not supposed to accept joint
checks to a [single] account, so we mean that personnel would be held liable in
the sense that (sic) once it is withdrawn or encashed, it will not be allowed.

As has been repeatedly emphasized, the banking business is imbued with public interest such
that the highest degree of diligence and highest standards of integrity and performance are
expected of banks in order to maintain the trust and confidence of the public in general in the
banking sector.30 Undoubtedly, BA Finance has a cause of action against petitioner.
Is petitioner liable to BA Finance for the full value of the check?
Petitioner, at all events, argue that its liability to BA Finance should only be one-half of the
amount covered by the check as there is no indication in the check that Bitanga and BA Finance
are solidary creditors to thus make them presumptively joint creditors under Articles 1207 and
1208 of the Civil Code which respectively provide:
Art. 1207. The concurrence of two or more creditors or of two or more debtors in one and the
same obligation does not imply that each one of the former has a right to demand, or that each
one of the latter is bound to render, entire compliance with the prestations. There is a solidary
liability only when the obligation expressly so states, or when the law or the nature of the
obligation requires solidarity.
Art. 1208. If from the law, or the nature or wording of the obligations to which the preceding
article refers to the contrary does not appear, the credit or debt shall be presumed to be divided
into as many equal shares as there are creditors or debtors, the debts or credits being
considered distinct from one another, subject to the Rules of Court governing the multiplicity of
suits.

Q In your experience, have you encountered any bank employee who was subjected
to disciplinary action by not following bank policies?

Petitioners argument is flawed.

A The one that happened in that case, since I really dont know who that personnel is,
he is no longer connected with the bank.

The provisions of the Negotiable Instruments Law and underlying jurisprudential teachings on
the black-letter law provide definitive justification for petitioners full liability on the value of the
check.

Q What about in general, do you know of any disciplinary action, Madam

witness?
A Since theres a negligence on the part of the bank personnel, it will be a
ground for his separation [from] the bank.26 (emphasis, italics and underscoring
supplied)
Admittedly, petitioner dismissed the employee who allowed the deposit of the check in Bitangas
account.
Petitioners argument that since there was neither forgery, nor unauthorized indorsement
because Bitanga was a co-payee in the subject check, the dictum in Associated Bank v. CA does
not apply in the present case fails. The payment of an instrument over a missing indorsement is
the equivalent of payment on a forged indorsement27 or an unauthorized indorsement in itself in
the case of joint payees.28
Clearly, petitioner, through its employee, was negligent when it allowed the deposit of the
crossed check, despite the lone endorsement of Bitanga, ostensibly ignoring the fact that the
check did not, it bears repeating, carry the indorsement of BA Finance.29

To be sure, a collecting bank, Asianbank in this case, where a check is deposited and which
indorses the check upon presentment with the drawee bank, is an indorser.[31] This is because in
indorsing a check to the drawee bank, a collecting bank stamps the back of the check with the
phrase "all prior endorsements and/or lack of endorsement guaranteed"32 and, for all intents and
purposes, treats the check as a negotiable instrument, hence, assumes the warranty of an
indorser.33 Without Asianbanks warranty, the drawee bank (China Bank in this case) would not
have paid the value of the subject check.
Petitioner, as the collecting bank or last indorser, generally suffers the loss because it has the
duty to ascertain the genuineness of all prior indorsements 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 prior indorsements.34
Accordingly, one who credits the proceeds of a check to the account of the indorsing payee is
liable in conversion to the non-indorsing payee for the entire amount of the check.35
It bears noting that in petitioners cross-claim against Bitanga, the trial court ordered Bitanga to
return to petitioner the entire value of the check P224,500.00 with interest as well as
damages and cost of suit. Petitioner never questioned this aspect of the trial courts disposition,
yet it now prays for the modification of its liability to BA Finance to only one-half of said amount.
To pander to petitioners supplication would certainly amount to unjust enrichment at BA

16
Finances expense. Petitioners remedywhich is the reimbursement for the full amount of the
check from the perpetrator of the irregularity lies with Bitanga.
Articles 1207 and 1208 of the Civil Code cannot be applied to the present case as these are
completely irrelevant. The drawer, Malayan Insurance in this case, issued the check to answer
for an underlying contractual obligation (payment of insurance proceeds). The obligation is
merely reflected in the instrument and whether the payees would jointly share in the proceeds or
not is beside the point.
Moreover, granting petitioners appeal for partial liability would run counter to the existing
principles on the liabilities of parties on negotiable instruments, particularly on Section 68 of
the Negotiable Instruments Law which instructs that joint payees who indorse are deemed
to indorse jointly and severally.36 Recall that when the maker dishonors the instrument, the
holder thereof can turn to those secondarily liable the indorser for recovery.37And since the
law explicitly mandates a solidary liability on the part of the joint payees who indorse the
instrument, the holder thereof (assuming the check was further negotiated) can turn to either
Bitanga or BA Finance for full recompense.
Respecting petitioners challenge to the award by the appellate court of exemplary damages to
BA Finance, the same fails. Contrary to petitioners claim that no moral, temperate, liquidated or
compensatory damages were awarded by the trial court,38 the RTC did in fact award
compensatory or actual damages of P224,500, the value of the check, plus interest thereon.
Petitioner argues, however, that assuming arguendo that compensatory damages had been
awarded, the same contravened Article 2232 of the Civil Code which provides that in contracts
or quasi-contracts, the court may award exemplary damages only if the defendant acted in a
wanton, fraudulent, reckless, oppressive, or malevolent manner. Since, so petitioner concludes,
there was no finding that it acted in a wanton, fraudulent, reckless, oppressive, or malevolent
manner,39 it is not liable for exemplary damages.
The argument fails. To reiterate, petitioners liability is based not on contract or quasi-contract
but on quasi-delictsince there is no pre-existing contractual relation between the parties.40 Article
2231 of the Civil Code, which provides that in quasi-delict, exemplary damages may be granted
if the defendant acted with gross negligence, thus applies. For "gross negligence" implies a want
or absence of or failure to exercise even slight care or diligence, or the entire absence of
care,41 evincing a thoughtless disregard of consequences without exerting any effort to avoid
them.42

x x x paid the amount of P224,500 to BA Finance Corporation and Lamberto Bitanga in

compliance with the decision in the case of "Lamberto Bitanga versus Malayan Insurance Co.,
Inc., Civil Case No. 88-2802, RTC-Makati Br. 132, and affirmed on appeal by the Supreme Court
[3rd Division], G.R. no. 101964, April 8, 1992 x x x.45 (underscoring supplied)
It is noted that Malayan Insurance, which stated that it was a matter of company policy to issue
checks in the name of the insured and the financing company, presented a witness to rebut its
supposed negligence. 46Perforce, it thus wrote a crossed check with joint payees so as to serve
warning that the check was issued for a definite purpose.47 Petitioner never ever disputed these
assertions.
The Court takes exception, however, to the appellate courts affirmance of the trial courts grant
of legal interest of 12% per annum on the value of the check. For the obligation in this case did
not arise out of a loan or forbearance of money, goods or credit. While Article 1980 of the Civil
Code provides that:
Fixed savings, and current deposits of money in banks and similar institutions shall be governed
by the provisions concerning simple loan,
said provision does not find application in this case since the nature of the relationship between
BA Finance and petitioner is one of agency whereby petitioner, as collecting bank, is to collect
for BA Finance the corresponding proceeds from the check.48 Not being a loan or forbearance of
money, the interest should be 6% per annum computed from the date of extrajudicial demand on
September 25, 1992 until finality of judgment; and 12% per annum from finality of judgment until
payment, conformably with Eastern Shipping Lines, Inc. v. Court of Appeals.[49]
WHEREFORE, the Decision of the Court of Appeals dated May 18, 2007 is AFFIRMED with
MODIFICATION in that the rate of interest on the judgment obligation of P224,500 should be 6%
per annum, computed from the time of extrajudicial demand on September 25, 1992 until its full
payment before finality of judgment; thereafter, if the amount adjudged remains unpaid, the
interest rate shall be 12% per annum computed from the time the judgment becomes final and
executory until fully satisfied.
Costs against petitioner.
SO ORDERED.

x x x The law allows the grant of exemplary damages to set an example for the public good. The
business of a bank is affected with public interest; thus it makes a sworn profession of diligence
and meticulousness in giving irreproachable service. For this reason, the bank should guard
against in injury attributable to negligence or bad faith on its part. The award of exemplary
damages is proper as a warning to [the petitioner] and all concerned not to recklessly disregard
their obligation to exercise the highest and strictest diligence in serving their depositors.43(Italics
and underscoring supplied)

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 141408

As for the dismissal by the appellate court of petitioners third-party complaint against Malayan
Insurance, the same is well-taken. Petitioner based its third-party complaint on Malayan
Insurances alleged gross negligence in issuing the check payable to both BA Finance and
Bitanga, despite the stipulation in the mortgage and in the insurance policy that liability for loss
shall be payable to BA Finance.44 Malayan Insurance countered, however, that it

October 18, 2007

METROPOLITAN BANK AND TRUST COMPANY, Petitioner,

vs.
PHILIPPINE BANK OF COMMUNICATIONS, FILIPINAS ORIENT FINANCE CORPORATION,
PIPE MASTER CORPORATION and TAN JUAN LIAN, Respondents.

17
x---------------------------------------------x
G.R. No. 141429

October 18, 2007

SOLID BANK CORPORATION, Petitioner,

vs.
FILIPINAS ORIENT FINANCE CORPORATION, PIPE MASTER CORPORATION, TAN JUAN
LIAN and/or PHILIPPINE BANK OF COMMUNICATIONS, Respondents.

being the collecting banks, but they refused. Thus, Filipinas Orient filed with the Regional Trial
Court (RTC), Branch 39, Manila a complaint for a sum of money against Pipe Master, Tan Juan
Lian and/or PBCom.
In their answer to the complaint, Pipe Master and Tan Juan Lian averred that they did not
authorize Yu Kio to negotiate and enter into discounting transaction with Filipinas Orient, and
even if Yu Kio was so authorized, Pipe Master never received the proceeds of the checks.
Consequently, they filed a cross-claim against PBCom for gross negligence for having paid the
wrong party. In turn, PBCom, Pipe Master and Tan Juan Lian filed third-party complaints against
Metro Bank and Solid Bank.

DECISION
SANDOVAL-GUTIERREZ, J.:
Sometime in 1978, Pipe Master Corporation (Pipe Master) represented by Yu Kio, its president,
applied for check discounting with Filipinas Orient Finance Corporation (Filipinas Orient). The
latter approved and granted the same.
On July 1, 1978, the Board of Directors of Pipe Master issued a Board Resolution authorizing Yu
Kio, in his capacity as president, and/or Tan Juan Lian, in his capacity as vice-president, to
execute, indorse, make, sign, deliver or negotiate instruments, documents and such other
papers necessary in connection with any transaction coursed through Filipinas Orient for and in
behalf of the corporation.
Tan Juan Lian then executed in favor of Filipinas Orient a continuing guaranty that he shall pay
at maturity any and all promissory notes, drafts, checks, or other instruments or evidence of
indebtedness for which Pipe Master may become liable; that the extent of his liability shall not at
any one time exceed the sum of P1,000,000.00; and that in the event of default by Pipe Master,
Filipinas Orient may proceed directly against him.
On April 9, 1980, under the check discounting agreement between Pipe Master and Filipinas
Orient, Yu Kio sold to Filipinas Orient four Metropolitan Bank and Trust Company (Metro Bank)
checks amounting to P1,000,000.00. In exchange for the four Metro Bank checks, Filipinas
Orient issued to Yu Kio four Philippine Bank of Communications (PBCom) crossed checks
totaling P964,303.62, payable to Pipe Master with the statement "for payees account only."
Upon his receipt of the four PBCom checks, Yu Kio indorsed and deposited in the Metro Bank, in
his personal account, three of the checks valued at P721,596.95. As to the remaining check
amounting to P242,706.67, he deposited it in the Solid Bank Corporation (Solid Bank), also in
his personal account. Eventually, PBCom paid Metro Bank and Solid Bank the amounts of the
checks. In turn, Metro Bank and Solid Bank credited the value of the checks to the personal
accounts of Yu Kio.
Subsequently, when Filipinas Orient presented the four Metro Bank checks equivalent
to P1,000,000.00 it received from Yu Kio, they were dishonored by the drawee bank. Pipe
Master, the drawer, refused to pay the amounts of the checks, claiming that it never received the
proceeds of the PBCom checks as they were delivered and paid to the wrong party, Yu Kio, who
was not the named payee.
Filipinas Orient then demanded that PBCom restore to its (Filipinas Orients) account the value
of the PBCom checks. In turn, PBCom sought reimbursement from Metro Bank and Solid Bank,

On July 12, 1990, the RTC rendered a Decision against Metro Bank and Solid Bank, the
dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered:
1. Ordering third-party defendant Metro Bank to pay plaintiff the amount of Seven
Hundred Twenty One Thousand Five Hundred Ninety Six Pesos and Ninety-Five
Centavos (P721,596.95) plus legal interest;
2. Ordering third-party defendant Solid Bank to pay plaintiff the amount of Two
Hundred Forty-Two Thousand Seven Hundred Six Pesos and Sixty-Seven Centavos
(P242,706.67) plus legal interest;
3. Ordering third-party defendants to pay the costs of suit.
SO ORDERED.
On appeal, the appellate court affirmed in toto the Decision of the trial court. Metro Bank and
Solid Bank filed their respective motions for reconsideration but the same were denied.
Hence, the instant consolidated petitions for review on certiorari filed by Metro Bank and Solid
Bank.
The issue for our resolution is whether Metro Bank and Solid Bank, petitioners, are liable to
respondent Filipinas Orient for accepting the PBCom crossed checks payable to Pipe Master.
Petitioner banks contend that respondents Pipe Master, Tan Juan Lian and/or PBCom should be
made liable to respondent Filipinas Orient for the value of the checks.
Respondents Pipe Master and Tan Juan Lian counter that although Yu Kio was expressly
authorized to indorse Pipe Masters checks, such authority extended only to acts done in the
ordinary course of business, not in his personal capacity. For its part, respondent Filipinas Orient
contends that petitioner banks were negligent in allowing Yu Kio to deposit the PBCom checks in
his account. Respondent PBCom, as the drawee bank, maintains that it has no liability because
in clearing the checks, it relied on the express guarantee made by petitioner banks that the
checks were validly indorsed.
We find in favor of respondents.

18
A check is defined by law as a bill of exchange drawn on a bank payable on demand.1 The
Negotiable Instruments Law is silent with respect to crossed checks. Nonetheless, this Court
has taken judicial cognizance of the practice that a check with two parallel lines on the upper left
hand corner means that it could only be deposited and not converted into cash.2 The crossing of
a check with the phrase "Payees Account Only" is a warning that the check should be deposited
in the account of the payee. It is the collecting bank which is bound to scrutinize the check and
to know its depositors before it can make the clearing indorsement, "all prior indorsements
and/or lack of indorsement guaranteed."3
Here, petitioner banks have the obligation to ensure that the PBCom checks were deposited in
accordance with the instructions stated in the checks.4 The four PBCom checks in question had
been crossed and issued "for payees account only." This could only mean that the drawer,
Filipinas Orient, intended the same for deposit only by the payee, Pipe Master. The effect of
crossing a check means that the drawer had intended the check for deposit only by the rightful
person, i.e., the payee named therein5 Pipe Master.
As what transpired in this case, petitioner banks accommodated Yu Kio, being a valued client
and the president of Pipe Master, and accepted the crossed checks. They stamped at the back
thereof that "all prior indorsements and/or lack of indorsements are guaranteed." In so doing,
they became general endorsers. Under Section 66 of the Negotiable Instruments Law, an
endorser warrants "that the instrument is genuine and in all respects what it purports to be; that
he has a good title to it; that all prior parties had capacity to contract; and that the instrument is
at the time of his indorsement valid and subsisting."
Clearly, petitioner banks, being endorsers, cannot deny liability.
In Associated Bank v. Court of Appeals,6 we held that the collecting bank or last endorser
generally suffers the loss because it has the duty to ascertain the genuineness of all prior
indorsements and is privy to the depositor who negotiated the check.
PBCom, as the drawee bank, cannot be held liable since it mainly relied on the express
guarantee made by petitioners, the collecting banks, of all prior indorsements.
Evidently, petitioner banks disregarded established banking rules and procedures. They were
negligent in accepting the checks and allowing the transaction to push through. In Jai-Alai Corp.
of the Phil. v. Bank of the Phil. Islands,7 we ruled that one who accepts and encashes a check
from an individual knowing that the payee is a corporation does so at his peril. Therefore,
petitioner banks are liable to respondent Filipinas Orient.1wphi1
In fine, it must be emphasized that the law imposes on the collecting bank the duty to diligently
scrutinize the 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.8 Since
petitioner banks negligence was the direct cause of the misappropriation of the checks, they
should bear and answer for respondent Filipinas Orients loss, without prejudice to their filing of
an appropriate action against Yu Kio.
9

WHEREFORE, we DENY the petitions. The challenged Decision and Resolution of the Court of
Appeals in CA-G.R. CV No. 30702 are AFFIRMED. Costs against petitioners.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 133179

March 27, 2008

ALLIED BANKING CORPORATION, Petitioner,

vs.
LIM SIO WAN, METROPOLITAN BANK AND TRUST CO., and PRODUCERS
BANK, Respondents.
DECISION
VELASCO, JR., J.:
To ingratiate themselves to their valued depositors, some banks at times bend over backwards
that they unwittingly expose themselves to great risks.
The Case
This Petition for Review on Certiorari under Rule 45 seeks to reverse the Court of Appeals
(CAs) Decision promulgated on March 18, 19981 in CA-G.R. CV No. 46290 entitled Lim Sio Wan
v. Allied Banking Corporation, et al. The CA Decision modified the Decision dated November 15,
19932 of the Regional Trial Court (RTC), Branch 63 in Makati City rendered in Civil Case No.
6757.
The Facts
The facts as found by the RTC and affirmed by the CA are as follows:
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, 1983,3 as evidenced by
Provisional Receipt No. 1356 dated November 14, 1983.4
On December 5, 1983, a person claiming to be Lim Sio Wan called up Cristina So, an officer of
Allied, and instructed the latter to pre-terminate Lim Sio Wans money market placement, to
issue a managers check representing the proceeds of the placement, and to give the check to
one Deborah Dee Santos who would pick up the check.5 Lim Sio Wan described the appearance
of Santos so that So could easily identify her.6
Later, Santos arrived at the bank and signed the application form for a managers check to be
issued.7 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.8 The check was cross-checked "For Payees Account Only" and given to Santos.9

19
Thereafter, the managers check was deposited in the account of Filipinas Cement Corporation
(FCC) at respondent Metropolitan Bank and Trust Co. (Metrobank),10 with the forged signature of
Lim Sio Wan as indorser.11
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.12 Such deposit is evidenced by Official Receipt No. 31756813 and a Letter
dated September 21, 1983 of Santos addressed to Angie Lazo of FCC, acknowledging receipt of
the placement.14 The placement matured on October 25, 1983 and was rolled-over until
December 5, 1983 as evidenced by a Letter dated October 25, 1983.15 When the placement
matured, FCC demanded the payment of the proceeds of the placement.16 On December 5,
1983, the same date that So received the phone call instructing her to pre-terminate Lim Sio
Wans placement, the managers check in the name of Lim Sio Wan was deposited in the
account of FCC, purportedly representing the proceeds of FCCs money market placement with
Producers Bank.17 In other words, the Allied check was deposited with Metrobank in the account
of FCC as Producers Banks payment of its obligation to FCC.
To clear the check and in compliance with the requirements of the Philippine Clearing House
Corporation (PCHC) Rules and Regulations, Metrobank stamped a guaranty on the check,
which reads: "All prior endorsements and/or lack of endorsement guaranteed."18
The check was sent to Allied through the PCHC. 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.19
On December 9, 1983, Lim Sio Wan deposited with Allied a second money market placement to
mature on January 9, 1984.20
On December 14, 1983, upon the maturity date of the first money market placement, Lim Sio
Wan went to Allied to withdraw it.21 She was then informed that the placement had been preterminated 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.22
When Lim Sio Wans second placement matured on January 9, 1984, So called Lim Sio Wan to
ask for the latters instructions on the second placement. Lim Sio Wan instructed So to roll-over
the placement for another 30 days.23 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.24 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.25

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.31 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.32
Lim Sio Wan thereafter filed an amended complaint to include Metrobank as a party-defendant,
along with Allied.33 The RTC admitted the amended complaint despite the opposition of
Metrobank.34 Consequently, Allieds third party complaint against Metrobank was converted into
a cross-claim and the latters fourth party complaint against FCC was converted into a third party
complaint.35
After trial, the RTC issued its Decision, holding as follows:
WHEREFORE, judgment is hereby rendered as follows:
1. Ordering defendant Allied Banking Corporation to pay plaintiff the amount of
P1,158,648.49 plus 12% interest per annum from March 16, 1984 until fully paid;
2. Ordering defendant Allied Bank to pay plaintiff the amount of P100,000.00 by way of
moral damages;
3. Ordering defendant Allied Bank to pay plaintiff the amount of P173,792.20 by way of
attorneys fees; and,
4. Ordering defendant Allied Bank to pay the costs of suit.
Defendant Allied Banks cross-claim against defendant Metrobank is DISMISSED.
Likewise defendant Metrobanks third-party complaint as against Filipinas Cement Corporation is
DISMISSED.
Filipinas Cement Corporations fourth-party complaint against Producers Bank is also
DISMISSED.
SO ORDERED.36
The Decision of the Court of Appeals

Consequently, Lim Sio Wan filed with the RTC a Complaint dated February 13, 1984 26 docketed
as Civil Case No. 6757 against Allied to recover the proceeds of her first money market
placement. Sometime in February 1984, she withdrew her second placement from Allied.

Allied appealed to the CA, which in turn issued the assailed Decision on March 18, 1998,
modifying the RTC Decision, as follows:

Allied filed a third party complaint27 against Metrobank and Santos. In turn, Metrobank filed a
fourth party complaint28 against FCC. FCC for its part filed a fifth party complaint29 against
Producers Bank. Summonses were duly served upon all the parties except for Santos, who was
no longer connected with Producers Bank.30

WHEREFORE, premises considered, the decision appealed from is MODIFIED. Judgment is

rendered ordering and sentencing defendant-appellant Allied Banking Corporation to pay sixty
(60%) percent and defendant-appellee Metropolitan Bank and Trust Company forty (40%) of the
amount of P1,158,648.49 plus 12% interest per annum from March 16, 1984 until fully paid. The
moral damages, attorneys fees and costs of suit adjudged shall likewise be paid by defendantappellant Allied Banking Corporation and defendant-appellee Metropolitan Bank and Trust

20
Company in the same proportion of 60-40. Except as thus modified, the decision appealed from
is AFFIRMED.

Art. 1953. A person who receives a loan of money or any other fungible thing acquires the
ownership thereof, and is bound to pay to the creditor an equal amount of the same kind and
quality.

SO ORDERED.37
Art. 1980. Fixed, savings, and current deposits of money in banks and similar institutions shall
be governed by the provisions concerning simple loan.

Hence, Allied filed the instant petition.

The Issues
Allied raises the following issues for our consideration:
The Honorable Court of Appeals erred in holding that Lim Sio Wan did not authorize [Allied] to
pre-terminate the initial placement and to deliver the check to Deborah Santos.
The Honorable Court of Appeals erred in absolving Producers Bank of any liability for the
reimbursement of amount adjudged demandable.
The Honorable Court of Appeals 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.38
The petition is partly meritorious.

Thus, we have ruled in a line of cases that a bank deposit is in the nature of a simple loan or
mutuum.42 More succinctly, in Citibank, N.A. (Formerly First National City Bank) v. Sabeniano,
this Court ruled that a money market placement is a simple loan or mutuum.43 Further, we
defined a money market in Cebu International Finance Corporation v. Court of Appeals, as
follows:
[A] money market is a market dealing in standardized short-term credit instruments (involving
large amounts) where lenders and borrowers do not deal directly with each other but through a
middle man or dealer in open market. In a money market transaction, the investor is a lender
who loans his money to a borrower through a middleman or dealer.
In the case at bar, the money market transaction between the petitioner and the private
respondent is in the nature of a loan.44
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.

A Question of Fact
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.39
We also agree with the CA when it said that it could not disturb the trial courts findings on the
credibility of witness So inasmuch as it was the trial court that heard the witness and had the
opportunity to observe closely her deportment and manner of testifying. Unless the trial court
had plainly overlooked facts of substance or value, which, if considered, might affect the result of
the case,40 we find it best to defer to the trial court on matters pertaining to credibility of
witnesses.
Additionally, this Court has held that the matter of negligence is also a factual question.41 Thus,
the finding of the RTC, affirmed by the CA, that the respective parties were negligent in the
exercise of their obligations is also conclusive upon this Court.
The Liability of the Parties
As to the liability of the parties, we find that Allied is liable to Lim Sio Wan. Fundamental and
familiar is the doctrine that the relationship between a bank and a client is one of debtor-creditor.
Articles 1953 and 1980 of the Civil Code provide:

Art. 1231 of the Civil Code enumerates the instances when obligations are considered
extinguished, thus:
Art. 1231. Obligations are extinguished:
(1) By payment or performance;
(2) By the loss of the thing due;
(3) By the condonation or remission of the debt;
(4) By the confusion or merger of the rights of creditor and debtor;
(5) By compensation;
(6) By novation.
Other causes of extinguishment of obligations, such as annulment, rescission, fulfillment of a
resolutory condition, and prescription, are governed elsewhere in this Code. (Emphasis
supplied.)

21
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.
Art. 1240 of the Code states that "payment shall be made to the person in whose favor the
obligation has been constituted, or his successor in interest, or any person authorized to receive
it." As commented by Arturo Tolentino:
Payment made by the debtor to a wrong party does not extinguish the obligation as to the
creditor, if there is no fault or negligence which can be imputed to the latter. Even when the
debtor acted in utmost good faith and by mistake as to the person of his creditor, or through
error induced by the fraud of a third person, the payment to one who is not in fact his creditor, or
authorized to receive such payment, is void, except as provided in Article 1241. Such payment
does not prejudice the creditor, and accrual of interest is not suspended by it. 45 (Emphasis
supplied.)
Since there was no effective payment of Lim Sio Wans money market placement, the bank still
has an obligation to pay her at six percent (6%) interest from March 16, 1984 until the payment
thereof.

a) The matters and things mentioned in subdivisions (a), (b) and (c) of the next
preceding section; and
b) That the instrument is at the time of his indorsement valid and subsisting;
And in addition, he engages that on due presentment, it shall be accepted or paid, or both, as
the case may be according to its tenor, and that if it be dishonored, and the necessary
proceedings on dishonor be duly taken, he will pay the amount thereof to the holder, or to any
subsequent indorser who may be compelled to pay it.
Section 65. Warranty where negotiation by delivery, so forth.Every person negotiating an
instrument by delivery or by a qualified indorsement, warrants:
a) That the instrument is genuine and in all respects what it purports to be;
b) That he has a good title of it;

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

c) That all prior parties had capacity to contract;

Allied claims that Metrobank is the proximate cause of the loss of Lim Sio Wans money. It points
out that Metrobank guaranteed all prior indorsements inscribed on the managers check, and
without Metrobanks guarantee, the present controversy would never have occurred. According
to Allied:

d) That he has no knowledge of any fact which would impair the validity of the
instrument or render it valueless.

Failure on the part of the collecting bank to ensure that the proceeds of the check is paid to the
proper party is, aside from being an efficient intervening cause, also the last negligent act, x x x
contributory to the injury caused in the present case, which thereby leads to the conclusion that
it is the collecting bank, Metrobank that is the proximate cause of the alleged loss of the plaintiff
in the instant case.46
We are not persuaded.
Proximate cause is "that cause, which, in natural and continuous sequence, unbroken by any
efficient intervening cause, produces the injury and without which the result would not have
occurred."47 Thus, there is an efficient supervening event if the event breaks the sequence
leading from the cause to the ultimate result. To determine the proximate cause of a controversy,
the question that needs to be asked is: If the event did not happen, would the injury have
resulted? If the answer is NO, then the event is the proximate cause.
In the instant case, 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.
Section 66 in relation to Sec. 65 of the Negotiable Instruments Law provides:
Section 66. Liability of general indorser.Every indorser who indorses without qualification,
warrants to all subsequent holders in due course;

But when the negotiation is by delivery only, the warranty extends in favor of no holder other
than the immediate transferee.
The provisions of subdivision (c) of this section do not apply to persons negotiating public or
corporation securities, other than bills and notes. (Emphasis supplied.)
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."48
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.
In isolated cases where the checks were deposited in an account other than that of the payees
on the strength of forged indorsements, we held the collecting bank solely liable for the whole
amount of the checks involved for having indorsed the same. In Republic Bank v. Ebrada,49 the
check was properly issued by the Bureau of Treasury. While in Banco de Oro Savings and
Mortgage Bank (Banco de Oro) v. Equitable Banking Corporation,50 Banco de Oro admittedly
issued the checks in the name of the correct payees. And in Traders Royal Bank v. Radio
Philippines Network, Inc.,51 the checks were issued at the request of Radio Philippines Network,
Inc. from Traders Royal Bank.1avvphi1

22
However, in Bank of the Philippine Islands v. Court of Appeals, we said that the drawee bank is
liable for 60% of the amount on the face of the negotiable instrument and the collecting bank is
liable for 40%. We also noted the relative negligence exhibited by two banks, to wit:

To reiterate, had Allied exercised the diligence due from a financial institution, the check would
not have been issued and no loss of funds would have resulted. In fact, there would have been
no issuance of indorsement had there been no check in the first place.

Both banks were negligent in the selection and supervision of their employees resulting in the
encashment of the forged checks by an impostor. Both banks were not able to overcome the
presumption of negligence in the selection and supervision of their employees. It was the gross
negligence of the employees of both banks which resulted in the fraud and the subsequent loss.
While it is true that petitioner BPIs negligence may have been the proximate cause of the loss,
respondent CBCs negligence contributed equally to the success of the impostor in encashing
the proceeds of the forged checks. Under these circumstances, we apply Article 2179 of the Civil
Code to the effect that while respondent CBC may recover its losses, such losses are subject to
mitigation by the courts. (See Phoenix Construction Inc. v. Intermediate Appellate Courts, 148
SCRA 353 [1987]).

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
Regulations55 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,56 its negligent and cavalier indorsement contributed to the easier release of Lim Sio Wans
money and perpetuation of the fraud. Given the relative participation of Allied and Metrobank to
the instant case, both banks cannot be adjudged as equally liable. Hence, the 60:40 ratio of the
liabilities of Allied and Metrobank, as ruled by the CA, must be upheld.

Considering the comparative negligence of the two (2) banks, we rule that the demands of
substantial justice are satisfied by allocating the loss of P2,413,215.16 and the costs of the
arbitration proceeding in the amount of P7,250.00 and the cost of litigation on a 60-40 ratio. 52
Similarly, we ruled in Associated Bank v. Court of Appeals that the issuing institution and the
collecting bank should equally share the liability for the loss of amount represented by the
checks concerned due to the negligence of both parties:
The Court finds as reasonable, the proportionate sharing of fifty percent-fifty percent (50%-50%).
Due to the negligence of the Province of Tarlac in releasing the checks to an unauthorized
person (Fausto Pangilinan), in allowing the retired hospital cashier to receive the checks for the
payee hospital for a period close to three years and in not properly ascertaining why the retired
hospital cashier was collecting checks for the payee hospital in addition to the hospitals real
cashier, respondent Province contributed to the loss amounting to P203,300.00 and shall be
liable to the PNB for fifty (50%) percent thereof. In effect, the Province of Tarlac can only recover
fifty percent (50%) of P203,300.00 from PNB.
The collecting bank, Associated Bank, shall be liable to PNB for fifty (50%) percent of
P203,300.00. It is liable on its warranties as indorser of the checks which were deposited by
Fausto Pangilinan, having guaranteed the genuineness of all prior indorsements, including that
of the chief of the payee hospital, Dr. Adena Canlas. Associated Bank was also remiss in its duty
to ascertain the genuineness of the payees indorsement.53
A reading of the facts of the two immediately preceding cases would reveal that the reason why
the bank or institution which issued the check was held partially liable for the amount of the
check was because of the negligence of these parties which resulted in the issuance of the
checks.
In the instant case, the trial court correctly found Allied negligent in issuing the managers check
and in transmitting it to Santos without even a written authorization. 54 In fact, Allied did not even
ask for the certificate evidencing the money market placement or call up Lim Sio Wan at her
residence or office to confirm her instructions. Both actions could have prevented the whole
fraudulent transaction from unfolding. Allieds negligence must be considered as the proximate
cause of the resulting loss.

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.57
As to Producers Bank, Allied Banks argument that Producers Bank must be held liable as
employer of Santos under Art. 2180 of the Civil Code is erroneous. Art. 2180 pertains to the
vicarious liability of an employer for quasi-delicts that an employee has committed. Such
provision of law does not apply to civil liability arising from delict.
One also cannot apply the principle of subsidiary liability in Art. 103 of the Revised Penal Code
in the instant case. Such liability on the part of the employer for the civil aspect of the criminal
act of the employee is based on the conviction of the employee for a crime. Here, there has
been no conviction for any crime.
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."1avvphi1
The above provision of law was clarified in Reyes v. Lim, where 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."58
In Tamio v. Ticson, we further clarified the principle of unjust enrichment, thus: "Under Article 22
of the Civil Code, there is unjust enrichment when (1) a person is unjustly benefited, and (2)
such benefit is derived at the expense of or with damages to another."59
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 placement should be deposited in FCCs account
purportedly as payment for FCCs money market placement and interest in Producers
Bank.lavvphil 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.

23
It cannot be validly claimed that FCC, and not Producers Bank, should be considered as having
been unjustly enriched. It must be remembered that FCCs money market placement with
Producers Bank was already due and demandable; thus, Producers Banks payment thereof
was justified. FCC was entitled to such payment. As earlier stated, the fact that the indorsement
on the check was forged cannot be raised against FCC which was not a part in any stage of the
negotiation of the check. FCC was not unjustly enriched.
From the facts of the instant case, we see that Santos could be the architect of the entire
controversy. Unfortunately, since summons had not been served on Santos, the courts have not
acquired jurisdiction over her.60 We, therefore, cannot ascribe to her liability in the instant case.
Clearly, Producers Bank must be held liable to Allied and Metrobank for the amount of the check
plus 12% interest per annum, moral damages, attorneys fees, and costs of suit which Allied and
Metrobank are adjudged to pay Lim Sio Wan based on a proportion of 60:40.
WHEREFORE, the petition is PARTLY GRANTED. The March 18, 1998 CA Decision in CA-G.R.
CV No. 46290 and the November 15, 1993 RTC Decision in Civil Case No. 6757 are AFFIRMED
with MODIFICATION.
Thus, the CA Decision is AFFIRMED, the fallo of which is reproduced, as follows:
WHEREFORE, premises considered, the decision appealed from is MODIFIED. Judgment is
rendered ordering and sentencing defendant-appellant Allied Banking Corporation to pay sixty
(60%) percent and defendant-appellee Metropolitan Bank and Trust Company forty (40%) of the
amount of P1,158,648.49 plus 12% interest per annum from March 16, 1984 until fully paid. The
moral damages, attorneys fees and costs of suit adjudged shall likewise be paid by defendantappellant Allied Banking Corporation and defendant-appellee Metropolitan Bank and Trust
Company in the same proportion of 60-40. Except as thus modified, the decision appealed from
is AFFIRMED.

DECISION
GARCIA, J.:
An action for a sum of money originating from the Regional Trial Court (RTC) of Makati City,
Branch 61, thereat docketed as Civil Case No. 88-1502, was decided in favor of therein plaintiff,
now respondent Rizal Commercial Banking Corporation (RCBC). On appeal to the Court of
Appeals (CA) in CA-G.R. CV No. 48596, that court, in a decision1 dated August 30, 2002,
affirmed the RTC minus the award of attorneys fees. Upon the instance of herein petitioner
Melva Theresa Alviar Gonzales, the case is now before this Court via this petition for review on
certiorari, based on the following undisputed facts as unanimously found by the RTC and the
CA, which the latter summarized as follows:
Gonzales was an employee of Rizal Commercial Banking Corporation (or RCBC) as New
Accounts Clerk in the Retail Banking Department at its Head Office.
A foreign check in the amount of $7,500 was drawn by Dr. Don Zapanta of the Ade Medical
Group with address at 569 Western Avenue, Los Angeles, California, against the drawee bank
Wilshire Center Bank, N.A., of Los Angeles, California, U.S.A., and payable to Gonzales mother,
defendant Eva Alviar (or Alviar). Alviar then endorsed this check. Since RCBC gives special
accommodations to its employees to receive the checks value without awaiting the clearing
period, Gonzales presented the foreign check to Olivia Gomez, the RCBCs Head of Retail
Banking. After examining this, Olivia Gomez requested Gonzales to endorse it which she did.
Olivia Gomez then acquiesced to the early encashment of the check and signed the check but
indicated thereon her authority of "up to P17,500.00 only". Afterwards, Olivia Gomez directed
Gonzales to present the check to RCBC employee Carlos Ramos and procure his signature.
After inspecting the check, Carlos Ramos also signed it with an "ok" annotation. After getting the
said signatures Gonzales presented the check to Rolando Zornosa, Supervisor of the
Remittance section of the Foreign Department of the RCBC Head Office, who after scrutinizing
the entries and signatures therein authorized its encashment. Gonzales then received its peso
equivalent of P155,270.85.

SO ORDERED.
Additionally and by way of MODIFICATION, Producers Bank is hereby ordered to pay Allied and
Metrobank the aforementioned amounts. The liabilities of the parties are concurrent and
independent of each other.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 156294

November 29, 2006

MELVA THERESA ALVIAR GONZALES, Petitioner,

vs.
RIZAL COMMERCIAL BANKING CORPORATION, Respondent.

RCBC then tried to collect the amount of the check with the drawee bank by the latter through its
correspondent bank, the First Interstate Bank of California, on two occasions dishonored the
check because of "END. IRREG" or irregular indorsement. Insisting, RCBC again sent the check
to the drawee bank, but this time the check was returned due to "account closed". Unable to
collect, RCBC demanded from Gonzales the payment of the peso equivalent of the check that
she received. Gonzales settled the matter by agreeing that payment be made thru salary
deduction. This temporary arrangement for salary deductions was communicated by Gonzales
to RCBC through a letter dated November 27, 1987 xxx
xxx

xxx

xxx

The deductions was implemented starting October 1987. On March 7, 1988 RCBC sent a
demand letter to Alviar for the payment of her obligation but this fell on deaf ears as RCBC did
not receive any response from Alviar. Taking further action to collect, RCBC then conveyed the
matter to its counsel and on June 16, 1988, a letter was sent to Gonzales reminding her of her
liability as an indorser of the subject check and that for her to avoid litigation she has to fulfill her
commitment to settle her obligation as assured in her said letter. On July 1988 Gonzales
resigned from RCBC. What had been deducted from her salary was only P12,822.20 covering
ten months.

24
It was against the foregoing factual backdrop that RCBC filed a complaint for a sum of money
against Eva Alviar, Melva Theresa Alviar-Gonzales and the latters husband Gino Gonzales. The
spouses Gonzales filed an Answer with Counterclaim praying for the dismissal of the complaint
as well as payment of P10,822.20 as actual damages, P20,000.00 as moral
damages, P20,000.00 as exemplary damages, and P20,000.00 as attorneys fees and litigation
expenses. Defendant Eva Alviar, on the other hand, was declared in default for having filed her
Answer out of time.
After trial, the RTC, in its three-page decision,2 held two of the three defendants liable as follows:
WHEREFORE, premises above considered and plaintiff having established its case against the
defendants as above stated, judgment is hereby rendered for plaintiff and as against defendant
EVA. P. ALVIAR as principal debtor and defendants MELVA THERESA ALVIAR GONZLAES as
guarantor as follows:
1. To pay plaintiff the amount of P142,648.65 (P155,270.85 less the amount
of P12,622.20, as salary deduction of [Gonzales]), representing the outstanding
obligation of the defendants with interest of 12% per annum starting February 1987
until fully paid;

to P17,500.00 only." There can be no other acceptable explanation for the dishonor of the
foreign check than this signature of Olivia Gomez with the phrase "up to P17,500.00 only"
accompanying it. This Court definitely agrees with the petitioner that the foreign drawee bank
would not have dishonored the check had it not been for this signature of Gomez with the same
phrase written by her.
The foreign drawee bank, Wilshire Center Bank N.A., refused to pay the bearer of this dollarcheck drawn by Don Zapanta because of the defect introduced by RCBC, through its employee,
Olivia Gomez. It is, therefore, a useless piece of paper if returned in that state to its original
payee, Eva Alviar.
There is no doubt in the mind of the Court that a subsequent party which caused the defect in
the instrument cannot have any recourse against any of the prior endorsers in good faith. Eva
Alviars and the petitioners liability to subsequent holders of the foreign check is governed by
the Negotiable Instruments Law as follows:
Sec. 66. Liability of general indorser. - Every indorser who indorses without qualification,
warrants to all subsequent holders in due course;

2. To pay the amount of P40,000.00 as and for attorneys fees; and to

(a) The matters and things mentioned in subdivisions (a), (b), and (c) of the next
preceding section; and

3. Pay the costs of this suit.

(b) That the instrument is, at the time of his indorsement, valid and subsisting;

SO ORDERED.
On appeal, the CA, except for the award of attorneys fees, affirmed the RTC judgment.
Hence, this recourse by the petitioner on her submission that the CA erred
XXX IN FINDING [PETITIONER], AN ACCOMMODATION PARTY TO A CHECK
SUBSEQUENTLY ENDORSED PARTIALLY, LIABLE TO RCBC AS GUARANTOR;
XXX IN FINDING THAT THE SIGNATURE OF GOMEZ, AN RCBC EMPLOYEE,
DOES NOT CONSTITUTE AS AN ENDORSEMENT BUT ONLY AN INTER-BANK
APPROVAL OF SIGNATURE NECESSARY FOR THE ENCASHMENT OF THE
CHECK;
XXX IN NOT FINDING RCBC LIABLE ON THE COUNTERCLAIMS OF [THE
PETITIONER].
The recourse is impressed with merit.
The dollar-check3 in question in the amount of $7,500.00 drawn by Don Zapanta of Ade Medical
Group (U.S.A.) against a Los Angeles, California bank, Wilshire Center Bank N.A., was
dishonored because of "End. Irregular," i.e., an irregular endorsement. While the foreign drawee
bank did not specifically state which among the four signatures found on the dorsal portion of the
check made the check irregularly endorsed, it is absolutely undeniable that only the signature of
Olivia Gomez, an RCBC employee, was a qualified endorsement because of the phrase "up

And, in addition, he engages that, on due presentment, it shall be accepted or paid, or both, as
the case may be, according to its tenor, and that if it be dishonored and the necessary
proceedings on dishonor be duly taken, he will pay the amount thereof to the holder, or to any
subsequent indorser who may be compelled to pay it.
The matters and things mentioned in subdivisions (a), (b) and (c) of Section 65 are the following:
(a) That the instrument is genuine and in all respects what it purports to be;
(b) That he has a good title to it;
(c) That all prior parties had capacity to contract;
Under Section 66, the warranties for which Alviar and Gonzales are liable as general endorsers
in favor of subsequent endorsers extend only to the state of the instrument at the time of their
endorsements, specifically, that the instrument is genuine and in all respects what it purports to
be; that they have good title thereto; that all prior parties had capacity to contract; and that the
instrument, at the time of their endorsements, is valid and subsisting. This provision, however,
cannot be used by the party which introduced a defect on the instrument, such as respondent
RCBC in this case, which qualifiedly endorsed the same, to hold prior endorsers liable on the
instrument because it results in the absurd situation whereby a subsequent party may render an
instrument useless and inutile and let innocent parties bear the loss while he himself gets away
scot-free. It cannot be over-stressed that had it not been for the qualified endorsement ("up
to P17,500.00 only") of Olivia Gomez, who is the employee of RCBC, there would have been no
reason for the dishonor of the check, and full payment by drawee bank therefor would have
taken place as a matter of course.

25
Section 66 of the Negotiable Instruments Law which further states that the general endorser
additionally engages that, on due presentment, the instrument shall be accepted or paid, or
both, as the case may be, according to its tenor, and that if it be dishonored and the necessary
proceedings on dishonor be duly taken, he will pay the amount thereof to the holder, or to any
subsequent endorser who may be compelled to pay it, must be read in the light of the rule in
equity requiring that those who come to court should come with clean hands. The holder or
subsequent endorser who tries to claim under the instrument which had been dishonored for
"irregular endorsement" must not be the irregular endorser himself who gave cause for the
dishonor. Otherwise, a clear injustice results when any subsequent party to the instrument may
simply make the instrument defective and later claim from prior endorsers who have no
knowledge or participation in causing or introducing said defect to the instrument, which thereby
caused its dishonor.
Courts in this jurisdiction are not only courts of law but also of equity, and therefore cannot
unqualifiedly apply a provision of law so as to cause clear injustice which the framers of the law
could not have intended to so deliberately cause. In Carceller v. Court of Appeals,4 this Court
had occasion to stress:
Courts of law, being also courts of equity, may not countenance such grossly unfair results
without doing violence to its solemn obligation to administer fair and equal justice for all.
RCBC, which caused the dishonor of the check upon presentment to the drawee bank, through
the qualified endorsement of its employee, Olivia Gomez, cannot hold prior endorsers, Alviar
and Gonzales in this case, liable on the instrument.
Moreover, it is a well-established principle in law that as between two parties, he who, by his
acts, caused the loss shall bear the same.5 RCBC, in this instance, should therefore bear the
loss.
Relative to the petitioners counterclaim against RCBC for the amount of P12,822.20 which it
admittedly deducted from petitioners salary, the Court must order the return thereof to the
petitioner, with legal interest of 12% per annum, notwithstanding the petitioners apparent
acquiescence to such an arrangement. It must be noted that petitioner is not any ordinary client
or depositor with whom RCBC had this isolated transaction. Petitioner was a rank-and-file
employee of RCBC, being a new accounts clerk thereat. It is easy to understand how a
vulnerable Gonzales, who is financially dependent upon RCBC, would rather bite the bullet, so
to speak, and expectedly opt for salary deduction rather than lose her job and her entire salary
altogether. In this sense, we cannot take petitioners apparent acquiescence to the salary
deduction as being an entirely free and voluntary act on her part. Additionally, under the
obtaining facts and circumstances surrounding the present complaint for collection of sum of
money by RCBC against its employee, which may be deemed tantamount to harassment, and
the fact that RCBC itself was the one, acting through its employee, Olivia Gomez, which gave
reason for the dishonor of the dollar-check in question, RCBC may likewise be held liable for
moral and exemplary damages and attorneys fees by way of damages, in the amount
of P20,000.00 for each.
WHEREFORE, the assailed CA Decision dated August 30, 2002 is REVERSED and SET ASIDE
and the Complaint in this case DISMISSED for lack of merit. Petitioners counterclaim is
GRANTED, ordering the respondent RCBC to reimburse petitioner the amount P12,822.20, with
legal interest computed from the time of salary deduction up to actual payment, and to pay
petitioner the total amount of P60,000.00 as moral and exemplary damages, and attorneys fees.

Costs against the respondent.

SO ORDERED.