BANK OF AMERICA NT & SA VS PHILIPPINE RACING CLUB

G.R. NO. 150228 ; JULY 30, 2009

(Articles 2179 and 1170)

Banks and Banking; Negotiable Instruments Law; If the signatures

are genuine, the bank has the unavoidable legal and contractual
duty to pay.Petitioner insists that it merely fulfilled its obligation under
law and contract when it encashed the aforesaid checks. Invoking Sections
126 and 185 of the Negotiable Instruments Law (NIL), petitioner claims that
its duty as a drawee bank to a drawer-client maintaining a checking account
with it is to pay orders for checks bearing the drawer-clients genuine
signatures. The genuine signatures of the clients duly authorized signatories
affixed on the checks signify the order for payment. Thus, pursuant to the
said obligation, the drawee bank has the duty to determine whether the
signatures appearing on the check are the drawer-clients or its duly
authorized signatories. If the signatures are genuine, the bank has the
unavoidable legal and contractual duty to pay. If the signatures are forged
and falsified, the drawee bank has the corollary, but equally unavoidable
legal and contractual, duty not to pay.
Same; Same; A material alteration is defined in Section 125 of the
Negotiable Instruments Law (NIL) to be one which changes the date,
the sum payable, the time or place of payment, the number or
relations of the parties, the currency in which payment is to be
made or one which adds a place of payment where no place of
payment is specified, or any change or addition which alters the
effect of the instrument in any respect.Petitioner maintains that there
exists a duty on the drawee bank to inquire from the drawer before
encashing a check only when the check bears a material alteration. A
material alteration is defined in Section 125 of the NIL to be one which

changes the date, the sum payable, the time or place of payment, the
number or relations of the parties, the currency in which payment is to be
made or one which adds a place of payment where no place of payment is
specified, or any other change or addition which alters the effect of the
instrument in any respect. With respect to the checks at issue, petitioner
points out that they do not contain any material alteration. This is a fact
which was affirmed by the trial court itself.
Same; It is well-settled that banks are engaged in a business
impressed with public interest, and it is their duty to protect in
return their many clients and depositors who transact business with
them.It is well-settled that banks are engaged in a business impressed
with public interest, and it is their duty to protect in return their many clients
and depositors who transact business with them. They have the obligation to
treat their clients account meticulously and with the highest degree of care,
considering the fiduciary nature of their relationship. The diligence required
of banks, therefore, is more than that of a good father of a family.
Same;

Every

client

should

be

treated

equally

by

banking

institution regardless of the amount of his deposits and each client

has the right to expect that every centavo he entrusts to a bank
would be handled with the same degree of care as the accounts of
other clients.Taking this with the testimony of petitioners operations
manager that in case of an irregularity on the face of the check (such as
when blanks were not properly filled out) the bank may or may not call the
client depending on how busy the bank is on a particular day, we are even
more convinced that petitioners safeguards to protect clients from check
fraud are arbitrary and subjective. Every client should be treated equally by
a banking institution regardless of the amount of his deposits and each client
has the right to expect that every centavo he entrusts to a bank would be
handled with the same degree of care as the accounts of other clients.

Perforce, we find that petitioner plainly failed to adhere to the high standard
of diligence expected of it as a banking institution.
Same; Doctrine of Last Clear Chance; In instances where both
parties are at fault, this Court has consistently applied the doctrine
of last clear chance in order to assign liability.Even if we assume that
both parties were guilty of negligent acts that led to the loss, petitioner will
still emerge as the party foremost liable in this case. In instances where both
parties are at fault, this Court has consistently applied the doctrine of last
clear chance in order to assign liability. In Westmont Bank v. Ong, 375 SCRA
212 (2002), we ruled: [I]t is petitioner [bank] which had the last clear
chance to stop the fraudulent encashment of the subject checks had it
exercised due diligence and followed the proper and regular banking
procedures in clearing checks. As we had earlier ruled, the one who had a
last clear opportunity to avoid the impending harm but failed to do so is
chargeable with the consequences thereof.
Damages; Following established jurisprudential precedents, we
believe the allocation of sixty percent (60%) of the actual damages,
involved in this case (represented by the amount of the checks with
legal interest) to petitioner is proper under the premises.Following
established jurisprudential precedents, we believe the allocation of sixty
percent (60%) of the actual damages involved in this case (represented by
the amount of the checks with legal interest) to petitioner is proper under the
premises. Respondent should, in light of its contributory negligence, bear
forty percent (40%) of its own loss.
Attorneys Fees; An adverse decision does not ipso facto justify an
award of attorneys fees to the winning party.We find that the
awards of attorneys fees and litigation expenses in favor of respondent are
not justified under the circumstances and, thus, must be deleted. The power
of the court to award attorneys fees and litigation expenses under Article

2208 of the NCC demands factual, legal, and equitable justification. An

adverse decision does not ipso facto justify an award of attorneys fees to the
winning party. Even when a claimant is compelled to litigate with third
persons or to incur expenses to protect his rights, still attorneys fees may
not be awarded where no sufficient showing of bad faith could be reflected in
a partys persistence in a case other than an erroneous conviction of the
righteousness of his cause.

Petitioner: Bank of America NT and SA

Respondent: Philippine Racing Club
Accused: Clarita Mesina

FACTS:
Plaintiff-appellee PRCI is a domestic corporation which maintains
several accounts with different banks in the Metro Manila area. Among the
accounts maintained was Current Account No. 58891-012 with defendantappellant BA Paseo de Roxas Branch. The authorized joint signatories with
respect to said Current Account were plaintiff-appellees President (Antonia
Reyes) and Vice President for Finance (Gregorio Reyes).
On or about the 2nd week of December 1988, the President and Vice
President of plaintiff-appellee corporation were scheduled to go out of the
country in connection with the corporations business. In order not to disrupt
operations in their absence, they pre-signed several checks relating to
Current Account No. 58891-012. The intention was to insure continuity of
plaintiff-appellees operations by making available cash/money especially to

settle obligations that might become due. These checks were entrusted to
the accountant with instruction to make use of the same as the need arose.
The internal arrangement was, in the event there was need to make use of
the checks, the accountant would prepare the corresponding voucher and
thereafter complete the entries on the pre-signed checks.
It turned out that on December 16, 1988, a John Doe presented to
defendant-appellant bank for encashment a couple of plaintiff-appellee
corporations checks with the indicated value of P110,000.00 each. It is
admitted that these 2 checks were among those presigned by plaintiffappellee corporations authorized signatories.
The 2 checks had similar entries with similar infirmities and
irregularities. On the space where the name of the payee should be indicated
(Pay To The Order Of) the following 2-line entries were instead typewritten:
on the upper line was the word CASH while the lower line had the following
typewritten words, viz: ONE HUNDRED TEN THOUSAND PESOS ONLY.
Despite the highly irregular entries on the face of the checks,
defendant-appellant bank, without as much as verifying and/or confirming
the legitimacy of the checks considering the substantial amount involved
and the obvious infirmity/defect of the checks on their faces, encashed said
checks.
Investigation conducted by plaintiff-appellee corporation yielded the
fact that there was no transaction involving PRCI that call for the payment of
P220,000.00 to anyone. The checks appeared to have come into the hands of
an employee of PRCI (one Clarita Mesina who was subsequently criminally
charged for qualified theft) who eventually completed without authority the
entries on the pre-signed checks.
PRCIs demand for defendant-appellant to pay fell on deaf ears. Hence,
the complaint.

ISSUE:
Whether the proximate cause of the wrongful encashment of the
checks in question was due to (a) petitioners failure to make a verification
regarding the said checks with the respondent in view of the misplacement
of entries on the face of the checks or (b) the practice of the respondent of
pre-signing blank checks and leaving the same with its employees.

HELD:
The proximate cause of the wrongful encashment of the checks in
question was due to petitioners failure to make a verification regarding the
said checks with the respondent in view of the misplacement of entries on
the face of the checks. However, respondents practice of pre-signing blank
checks and leaving the same with its employees is considered by the Court
as contributory negligence.
There is no dispute that the signatures appearing on the subject
checks were genuine signatures of the respondents authorized joint
signatories. It is likewise admitted that neither of the subject checks contains
any material alteration or erasure. However, on the presence of irregularities
in each check should have alerted the petitioner to be cautious before
proceeding to encash them which it did not do. It is well-settled that banks
are engaged in a business impressed with public interest, and it is their duty
to protect in return their many clients and depositors who transact business
with them. The diligence required of banks, therefore, is more than that of a
good father of a family. Extraordinary diligence demands that petitioner
should have ascertained from respondent the authenticity of the subject
checks or the accuracy of the entries therein not only because of the
presence of highly irregular entries on the face of the checks but also of the
decidedly unusual circumstances surrounding their encashment.
However, we do agree with petitioner that respondents officers
practice of pre-signing of blank checks should be deemed seriously negligent
behavior and a highly risky means of purportedly ensuring the efficient
operation of businesses. It should have occurred to respondents officers and
managers that the pre-signed blank checks could fall into the wrong hands
as they did in this case where the said checks were stolen from the company
accountant to whom the checks were entrusted. We also cannot ignore the
fact that the person who stole the pre-signed checks subject of this case
from respondents accountant turned out to be another employee,
purportedly a clerk in respondents accounting department. As the employer
of the thief, respondent supposedly had control and supervision over its
own employee. This gives the Court more reason to allocate part of the loss
to respondent.
Nevertheless, even if we assume that both parties were guilty of
negligent acts that led to the loss, petitioner will still emerge as the party
foremost liable in this case. In instances where both parties are at fault, this

Court has consistently applied the doctrine of last clear chance in order to
assign liability.
Following established jurisprudential precedents, we believe the
allocation of 60% of the actual damages involved in this case (represented
by the amount of the checks with legal interest) to petitioner is proper under
the premises. Respondent should, in light of its contributory negligence, bear
40% of its own loss. However, we find that the awards of attorneys fees and
litigation expenses in favor of respondent are not justified under the
circumstances and, thus, must be deleted. The power of the court to award
attorneys fees and litigation expenses under Article 2208 of the NCC
demands factual, legal, and equitable justification.