Security Bank v.

Rizal Commercial (2009)

Lessons Applicable: Consideration and Accommodation Party (Negotiable Instruments law)

FACTS:
January 9, 1981: Security Bank and Trust Company (SBTC) issued a managers check
for P 8M, payable to "CASH," as proceeds of the loan granted to Guidon Construction
and Development Corporation (GCDC)
deposited by Continental Manufacturing Corporation (CMC) in its Current Account
with Rizal Commercial Banking Corporation (RCBC)
Immediately, RCBC honored the P8M check and allowed CMC to withdraw

January 12, 1981: GCDC issued a "Stop Payment Order" to SBTC claiming that the P 8M
check was released to a 3rd party by mistake
SBTC dishonored and returned the managers check to RCBC

February 13, 1981: RCBC filed a complaint for damages against SBTC with CFI then
transferred to RTC
Following the rules of the Philippine Clearing House, RCBC and SBTC stopped
returning the checks to each other.
By way of a temporary arrangement pending resolution of the case, the P 8 M check was
equally divided between RCBC and SBTC

May 9, 2000: RTC in favor of RCBC

CA: affirmed with modification RTC decision by adding interest

ISSUE: W/N SBTC should be held liable for its manager's check
HELD: YES. CA affirmed.

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

RCBC, in immediately crediting the amount of P8 million to CMCs account, relied on

the integrity and honor of the check as it is regarded in commercial transactions

July 9, 1980 Memorandum: banks were given the discretion to allow immediate
drawings on uncollected deposits of managers checks, among others
important that banks should guard against injury attributable to negligence or bad faith
on its part
banking business is impressed with public interest, the trust and confidence of the public
in it is of paramount importance
highest degree of diligence is expected, and high standards of integrity and performance
are required of it
Bank of America vs. Philippine Racing Club

G.R. 150228 July 30, 2009

Ponente: Leonardo-De Castro, J:

Facts:

1. Plaintiff PRCI is a domestic corporation which maintains a current account with petitioner
Bank of America. Its authorized signatories are the company President and Vice-President.
By virtue of a travel abroad for these officers, they pre-signed checks to accommodate any
expenses that may come up while they were abroad for a business trip. The said pre-signed
checks were left for safekeeping by PRCs accounting officer. Unfortunately, the two (2) of
said checks came into the hands of one of its employees who managed to encash it with
petitioner bank. The said check was filled in with the use of a check-writer, wherein in the
blank for the 'Payee', the amount in words was written, with the word 'Cash' written above
it.

2. Clearly there was an irregularity with the filling up of the blank checks as both showed
similar infirmities and irregularities and yet, the petitioner bank did not try to verify with
the corporation and proceeded to encash the checks.

3. PRC filed an action for damages against the bank. The lower court awarded actual and
exemplary damages. On appeal, the CA affirmed the lower court's decision and held that the
bank was negligent. Hence this appeal. Petitioner contends that it was merely doing its
obligation under the law and contract in encashing the checks, since the signatures in the
checks are genuine.

Issue: Whether or not the petitioner can be held liable for negligence and thus should pay
damages to PRC

Both parties are held to be at fault but the bank has the last clear chance to prevent the
fraudulent encashment hence it is the one foremost liable .

1. There was no dispute that the signatures in the checks are genuine but the presence of
irregularities on the face of the check should have alerted the bank to exercise caution before
encashing them. It is well-settled that banks are in the business impressed with public
interest that they are duty bound to protect their clients and their deposits at all times. They
must treat the accounts of these clients with meticulousness and a highest degree of care
considering the fiduciary nature of their relationship. The diligence required of banks are
more than that of a good father of a family.

2. The PRC officers' practice of pre-signing checks is a seriously negligent and highly risky
behavior which makes them also contributor to the loss. It's own negligence must therefore
mitigate the petitioner's liability. Moreover, the person who stole the checks is also an
employee of the plaintiff, a cleck in its accounting department at that. As the employer, PRC
supposedly should have control and supervision over its own employees.

3. The court held that the petitioner is liable for 60% of the total amount of damages while
PRC should shoulder 40% of the said amount.
 ALLIED BANKING CORP. v LIM SIO WAN, METROPOLITAN
BANK AND TRUST CO., and
PRODUCERS BANK,
G.R. No. 133179
VELASCO, JR., J
DOCTRINE: The warranty that the instrument is genuine and in all respects what it
purports to be covers all the defects in the instrument affecting the validity thereof,
including a forged indorsement. Thus, the last indorser will be liable for the amount
indicated in the negotiable instrument even if a previous indorsement was forged. We held
in a line of cases that a collecting bank which indorses a check bearing a forged
indorsement and presents it to the drawee bank guarantees all prior indorsements,
including the forged indorsement itself, and ultimately should be held liable therefor.
However, this general rule is subject to exceptions. One such exception is when the issuance
of the check itself was attended with negligence.

FACTS: On September 21, 1983, FCC had deposited a money market placement for
respondent Producers Bank which was received and acknowledged in a letter. The
placement matured on October 25, 1983 and was rolled-over until December 5, 1983. FCC
demanded payment of the proceeds of the placement the same day.
Before FCCs demand, on November 14, 1983, Lim Sio Wan deposited with petitioner Allied
Banking Corporation (Allied) a money market placement of P 1,152,597.35 for a term of 31
days to mature on December 15, 1983. On December 5, 1983, a person claiming to be Lim Sio
Wan called up 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. The
managers check was issued in the name of Lim Sio Wan, as payee. The check was cross-
checked For Payees Account Only and given to Santos. Thereafter, the said managers check
was deposited in the account of Filipinas Cement Corporation (FCC) at respondent
Metropolitan Bank and Trust Co. (Metrobank), with the forged signature of Lim Sio Wan as
indorser.
In short, the Allied check was deposited in FCCs account in Metrobank purportingly
representing the proceeds of FCCs money market placement proceeds.
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.
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
On the date of maturity of her money market placement, Lim Sio Wan tried to
withdraw the same and was informed that she called to preterminate it a few days earlier.
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. However, upon subsequent demand Allied refused to pay Lim Sio Wan. Thus
she filed with the RTC a Complaint against Allied to recover the proceeds of her money
market placement. Allied filed a third party complaint against Metrobank and Santos. The
trial and appellate court ordered Allied to pay sixty (60%) percent Metrobank forty (40%) of
the amount of plus 12% interest per annum.
ISSUE/S: Is petitioners liability to the extent of 60% of amount adjudged demandable and
Metrobank to the extent of 40% as guarantor of all endorsement on the check, it being the
collecting bank?
HELD/FALLO: Yes, the 60:40 ratio of the liabilities of Allied and Metrobank must be upheld.
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;
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;
c) That all prior parties had capacity to contract;
d) That he has no knowledge of any fact which would impair the validity of the
instrument or render it valueless.
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. As provided in Section 66 in relation to
Sec. 65 of the Negotiable Instruments Law, the warranty that the instrument is genuine and
in all respects what it purports to be covers all the defects in the instrument affecting the
validity thereof, including a forged indorsement. Thus, the last indorser will be liable for the
amount indicated in the negotiable instrument even if a previous indorsement was forged.
We held in a line of cases that a collecting bank which indorses a check bearing a forged
indorsement and presents it to the drawee bank guarantees all prior indorsements,
including the forged indorsement itself, and ultimately should be held liable therefor.
However, this general rule is subject to exceptions. One such exception is when the issuance
of the check itself was attended with negligence.
In the instant case, Allied was negligent in issuing the managers check and in transmitting it
to Santos without even a written authorization The liability of Allied, however, is concurrent
with that of Metrobank as the last indorser of the check. 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 must be upheld.
THE CONSOLIDATED BANK and TRUST CORPORATION vs. COURT OF APPEALS
and L.C. DIAZ and COMPANY, G.R. No. 138569, Sep 11, 2003.

FACT:
Petitioner Solidbank is a domestic banking corporation organized and existing under
Philippine laws. Private respondent L.C. Diaz and Company, CPAs, is a professional
partnership engaged in the practice of accounting. In March 1976, L.C. Diaz opened a
savings account with Solidbank. On 14 August 1991, L.C. Diaz through its cashier, Mercedes
Macaraya, filled up a savings (cash) deposit slip for P990 and a savings (checks) deposit slip
for P50. Macaraya instructed the messenger of L.C. Diaz, Ismael Calapre, to deposit the
money with Solidbank. Macaraya also gave Calapre the Solidbank passbook.

Calapre went to Solidbank and presented to Teller No. 6 the two deposit slips and the
passbook. The teller acknowledged the receipt of the deposit by returning to Calapre the
duplicate copies of the two deposit slips. Teller No. 6 stamped the deposit slips with the
words DUPLICATE and SAVING TELLER 6 SOLIDBANK HEAD OFFICE. Since the
transaction took time and Calapre had to make another deposit for L.C. Diaz with Allied
Bank, he left the passbook with Solidbank. Calapre then went to Allied Bank. When Calapre
returned to Solidbank to retrieve the passbook, Teller No. 6 informed him that somebody
got the passbook.

Calapre went back to L.C. Diaz and reported the incident to Macaraya. Macaraya
immediately prepared a deposit slip in duplicate copies with a check of P200,000. Macaraya
and Calapre went to Solidbank and presented to Teller No. 6 the deposit slip and check. The
teller stamped the words DUPLICATE and SAVING TELLER 6 SOLIDBANK HEAD
OFFICE on the duplicate copy of the deposit slip. When Macaraya asked for the passbook,
Teller No. 6 told Macaraya that someone got the passbook but she could not remember to
whom she gave the passbook. When Macaraya asked Teller No. 6 if Calapre got the
passbook, Teller No. 6 answered that someone shorter than Calapre got the passbook.
Calapre was then standing beside Macaraya.

The following day L.C. Diaz learned of the unauthorized withdrawal the day before (14
August 1991) of P300,000 from its savings account. The withdrawal slip for the P300,000 bore
the signatures of the authorized signatories of L.C. Diaz, namely Diaz and Rustico L.
Murillo. The signatories, however, denied signing the withdrawal slip. A certain Noel
Tamayo received the P300,000.

L.C. Diaz demanded from Solidbank the return of its money. Solidbank refused. L.C. Diaz
filed a Complaint for Recovery of a Sum of Money against Solidbank. The trial court
absolved Solidbank. L.C. Diaz appealed to the CA. CA reversed the ecision of the trial court.
CA denied the motion for reconsideration of Solidbank. But it modified its decision by
deleting the award of exemplary damages and attorneys fees. Hence this petition.

ISSUE: WON petitioner Solidbank is liable - Yes. Solidbank is liable for breach of contract
due to negligence, or culpa contractual.

RULING:
The contract between the bank and its depositor is governed by the provisions of the Civil
Code on simple loan. Article 1980 of the Civil Code expressly provides that x x x savings x
x x deposits of money in banks and similar institutions shall be governed by the provisions
concerning simple loan. There is a debtor-creditor relationship between the bank and its
depositor. The bank is the debtor and the depositor is the creditor. The depositor lends the
bank money and the bank agrees to pay the depositor on demand. The savings deposit
agreement between the bank and the depositor is the contract that determines the rights and
obligations of the parties. The law imposes on banks high standards in view of the fiduciary
nature of banking. 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.

This fiduciary relationship means that the banks obligation to observe high standards of
integrity and performance is deemed written into every deposit agreement between a bank
and its depositor. The fiduciary nature of banking requires banks to assume a degree of
diligence higher than that of a good father of a family. Article 1172 of the Civil Code states
that the degree of diligence required of an obligor is that prescribed by law or contract, and
absent such stipulation then the diligence of a good father of a family. Section 2 of RA 8791
prescribes the statutory diligence required from banks that banks must observe high
standards of integrity and performance in servicing their depositors.
However, the fiduciary nature of a bank-depositor relationship does not convert the contract
between the bank and its depositors from a simple loan to a trust agreement, whether
express or implied. Failure by the bank to pay the depositor is failure to pay a simple loan,
and not a breach of trust. The law simply imposes on the bank a higher standard of integrity
and performance in complying with its obligations under the contract of simple loan,
beyond those required of non-bank debtors under a similar contract of simple loan.
The fiduciary nature of banking does not convert a simple loan into a trust agreement
because banks do not accept deposits to enrich depositors but to earn money for themselves.

Solidbanks Breach of its Contractual Obligation

Article 1172 of the Civil Code provides that responsibility arising from negligence in the
performance of every kind of obligation is demandable. For breach of the savings deposit
agreement due to negligence, or culpa contractual, the bank is liable to its depositor.
Calapre left the passbook with Solidbank because the transaction took time and he had to
go to Allied Bank for another transaction. The passbook was still in the hands of the
employees of Solidbank for the processing of the deposit when Calapre left Solidbank. When
the passbook is in the possession of Solidbanks tellers during withdrawals, the law imposes
on Solidbank and its tellers an even higher degree of diligence in safeguarding the passbook.
Solidbanks tellers must exercise a high degree of diligence in insuring that they return the
passbook only to the depositor or his authorized representative. For failing to return the
passbook to Calapre, the authorized representative of L.C. Diaz, Solidbank and Teller No. 6
presumptively failed to observe such high degree of diligence in safeguarding the passbook,
and in insuring its return to the party authorized to receive the same.
In culpa contractual, once the plaintiff proves a breach of contract, there is a presumption
that the defendant was at fault or negligent. The burden is on the defendant to prove that he
was not at fault or negligent. In contrast, in culpa aquiliana the plaintiff has the burden of
proving that the defendant was negligent. In the present case, L.C. Diaz has established that
Solidbank breached its contractual obligation to return the passbook only to the authorized
representative of L.C. Diaz. There is thus a presumption that Solidbank was at fault and its
teller was negligent in not returning the passbook to Calapre. The burden was on Solidbank
to prove that there was no negligence on its part or its employees. But Solidbank failed to
discharge its burden. Solidbank did not present to the trial court Teller No. 6, the teller with
whom Calapre left the passbook and who was supposed to return the passbook to him.
Solidbank also failed to adduce in evidence its standard procedure in verifying the identity
of the person retrieving the passbook, if there is such a procedure, and that Teller No. 6
implemented this procedure in the present case. Solidbank is bound by the negligence of its
employees under the principle of respondeat superior or command responsibility. The
defense of exercising the required diligence in the selection and supervision of employees is
not a complete defense in culpa contractual, unlike in culpa aquiliana. The bank must not
only exercise high standards of integrity and performance, it must also insure that its
employees do likewise because this is the only way to insure that the bank will comply with
its fiduciary duty

Proximate Cause of the Unauthorized Withdrawal

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. Proximate cause is determined by the facts of each case upon mixed
considerations of logic, common sense, policy and precedent.
L.C. Diaz was not at fault that the passbook landed in the hands of the impostor. Solidbank
was in possession of the passbook while it was processing the deposit. After completion of
the transaction, Solidbank had the contractual obligation to return the passbook only to
Calapre, the authorized representative of L.C. Diaz. Solidbank failed to fulfill its contractual
obligation because it gave the passbook to another person.
Had the passbook not fallen into the hands of the impostor, the loss of P300,000 would not
have happened. Thus, the proximate cause of the unauthorized withdrawal was Solidbanks
negligence in not returning the passbook to Calapre.

Doctrine of Last Clear Chance

The doctrine of last clear chance states that where both parties are negligent but the
negligent act of one is appreciably later than that of the other, or where it is impossible to
determine whose fault or negligence caused the loss, the one who had the last clear
opportunity to avoid the loss but failed to do so, is chargeable with the loss. The antecedent
negligence of the plaintiff does not preclude him from recovering damages caused by the
supervening negligence of the defendant, who had the last fair chance to prevent the
impending harm by the exercise of due diligence.
We do not apply the doctrine of last clear chance to the present case. This is a case of culpa
contractual, where neither the contributory negligence of the plaintiff nor his last clear
chance to avoid the loss, would exonerate the defendant from liability. Such contributory
negligence or last clear chance by the plaintiff merely serves to reduce the recovery of
damages by the plaintiff but does not exculpate the defendant from his breach of contract

Mitigated Damages
Under Article 1172, liability (for culpa contractual) may be regulated by the courts,
according to the circumstances. This means that if the defendant exercised the proper
diligence in the selection and supervision of its employee, or if the plaintiff was guilty of
contributory negligence, then the courts may reduce the award of damages. In this case, L.C.
Diaz was guilty of contributory negligence in allowing a withdrawal slip signed by its
authorized signatories to fall into the hands of an impostor. Thus, the liability of Solidbank
should be reduced.
In PBC v. CA where the Court held the depositor guilty of contributory negligence, we
allocated the damages between the depositor and the bank on a 40-60 ratio. Applying the
same ruling to this case, we hold that L.C. Diaz must shoulder 40% of the actual damages
awarded by the appellate court. Solidbank must pay the other 60% of the actual damages.
WHEREFORE, the decision of the Court of Appeals is AFFIRMED with MODIFICATION.
PHILIPPINE BANK OF COMMERCE, now absorbed by PHILIPPINE
COMMERCIAL INTERNATIONAL BANK, ROGELIO LACSON, DIGNA DE
LEON, MARIA ANGELITA PASCUAL, et al. vs. THE COURT OF APPEALS,
ROMMEL'S MARKETING CORP., G.R. No. 97626 March 14, 1997

FACTS: On May 5, 1975 to July 16, 1976, Romeo Lipana claims to have entrusted RMC funds
in the form of cash totalling P304,979.74 to his secretary, Irene Yabut, for the purpose of
depositing said funds in the current accounts of RMC with Philippine Bank of Commerce
(PBC). They were not credited to RMC's account but were instead deposited to Account No.
53-01734-7 of Yabut's husband, Bienvenido Cotas. Romeo Lipana never checked their
monthly statements of account reposing complete trust and confidence on PBC.

Irene Yabut's modus operandi was to furnish 2 copies of deposit slip upon and both are
always validated and stamped by the teller Azucena Mabayad;
original showed the name of her husband as depositor and his current account
number - retained by the bank
duplicate copy was written the account number of her husband but the name of the
account holder was left blank
After validation, Yabut would then fill up the name of RMC in the space left blank in
the duplicate copy and change the account number to RMC's account number

This went on in a span of more than 1 year without private respondent's knowledge. Upon
discovery of the loss of its funds, RMC demanded from PBC the return of its money and
later on filed in the RTC.

RTC ruled that PBC and Azucena Mabayad are jointly and severally liable. CA affirmed
with modification deleting awards of exemplary damages and attorney's fees.

ISSUE:
1. Whether or not applying the last clear chance, PBC's teller is negligent for failing to
avoid the injury by not exercising the proper validation procedure.
2. Whether or not there was contributory negligence by RMC.

HELD: 60-40 ratio. Only the balance of 60% needs to be paid by the PBC

1. YES. The fact that the duplicate slip was not compulsorily required by the bank in
accepting deposits should not relieve the PBC of responsibility. The odd circumstance alone
that such duplicate copy lacked vital information (Name of the account holder) should have
already put Ms. Mabayad on guard.
Negligence here lies not only on the part of Ms. Mabayad but also on the part of the
bank itself in its lack in selection and supervision of Ms. Mabayad.
Mr. Romeo Bonifacio, then Manager of the Pasig Branch of the petitioner bank and now
its Vice-President, to the effect that, while he ordered the investigation of the incident, he
never came to know that blank deposit slips were validated in total disregard of the
bank's validation procedures until 7 years later
last clear chance/supervening negligence/discovered peril: where both parties are
negligent, but the negligent act of one is appreciably later in time than that of the other,
or when it is impossible to determine whose fault or negligence should be attributed to
the incident, the one who had the last clear opportunity to avoid the impending harm
and failed to do so is chargeable with the consequences thereof
 antecedent negligence of a person does not preclude the recovery of damages for the
supervening negligence of, or bar a defense against liability sought by another, if the
latter, who had the last fair chance, could have avoided the impending harm by the
exercise of due diligence.
Here, assuming that RMC was negligent in entrusting cash to a dishonest employee, yet
it cannot be denied that PBC bank, thru its teller, had the last clear opportunity to avert
the injury incurred by its client, simply by faithfully observing their self-
imposed validation procedure.
Art. 1173. The fault or negligence of the obligor consists in the omission of that diligence
which is required by the nature of the obligation and corresponds with the
circumstances of the persons, of the time and of the place. When negligence shows bad
faith, the provisions of articles 1171 and 2201, paragraph 2, shall apply.
If the law or contract does not state the diligence which is to be observed in the
performance, that which is expected of a good father of a family shall be required. In
the case of banks, however, the degree of diligence required is more than that of
a good father of a family. Considering the fiduciary nature of their relationship with
their depositors, banks are duty bound to treat the accounts of their clients with
the highest degree of care

2. YES. Private respondent was likewise negligent in not checking its monthly statements of
account. Had it done so, the company would have been alerted to the frauds being
committed against RMC by its secretary. The damage would not have ballooned to such an
amount if only RMC, particularly Romeo Lipana, had exercised even a little vigilance in
their financial affairs. This omission by RMC amounts to contributory negligence which
shall mitigate the damages that may be awarded to the private respondent.

Article 2179 of the New Civil Code:

When the plaintiff's own negligence was the immediate and proximate cause of his injury, he cannot
recover damages. But if his negligence was only contributory, the immediate and proximate cause of
the injury being the defendant's lack of due care, the plaintiff may recover damages, but the courts
shall mitigate the damages to be awarded.

DISPOSITIVE: WHEREFORE, the decision of the respondent Court of Appeals is modified

by reducing the amount of actual damages private respondent is entitled to by 40%.
Petitioners may recover from Ms. Azucena Mabayad the amount they would pay the private
respondent. Private respondent shall have recourse against Ms. Irene Yabut. In all other
respects, the appellate court's decision is AFFIRMED.