Associated Bank v. CA

G.R. No. 107382, 107612 (January 31, 1996)

Tarlac, PNB, and Associated Bank are liable for 30 checks with forged endorsements due to negligence.

Facts:

The Province of Tarlac maintained a current account with the Philippine National Bank (PNB) Tarlac Branch, where provincial funds were deposited. Checks issued by the Province were signed by the Provincial Treasurer and countersigned by the Provincial Auditor or the Secretary of the Sangguniang Bayan. A portion of these funds was allocated to the Concepcion Emergency Hospital, with allotment checks drawn to the order of the hospital or its chief.

In January 1981, a post-audit of the Provincial Treasurer's accounts revealed that several allotment checks had not been received by the hospital. Upon further investigation, it was discovered that 30 checks totaling P203,300.00 had been encashed by Fausto Pangilinan, a retired administrative officer and cashier of the hospital, who had forged the signature of Dr. Adena Canlas, the hospital's chief. Pangilinan had presented these checks to the Associated Bank, which acted as the collecting bank.

The manager of Associated Bank testified that he did not find it irregular that the checks were not made out to Pangilinan, as he claimed to be assisting the hospital. After the Province of Tarlac requested the return of cleared checks for verification, it was confirmed that the checks had been improperly encashed. The Province subsequently sought reimbursement from PNB, which in turn demanded reimbursement from Associated Bank.

The case was brought to trial, where the lower court ruled in favor of the Province of Tarlac, ordering PNB to pay the amount of the checks, and PNB was to be reimbursed by Associated Bank. Both banks appealed the decision.

Legal Issues:

  1. Who bears the loss when checks with forged endorsements are paid: the drawer (Province of Tarlac), the drawee bank (PNB), or the collecting bank (Associated Bank)?
  2. Was the Province of Tarlac negligent in allowing a retired employee to collect checks?
  3. Did PNB and Associated Bank exercise due diligence in their respective roles regarding the forged checks?

Arguments:

  • Philippine National Bank (PNB):

    • PNB argued that the Province of Tarlac was negligent for allowing Pangilinan, who was no longer connected with the hospital, to collect the checks. PNB contended that as between two innocent parties, the one whose act caused the loss (the Province) should bear the loss.
    • PNB also claimed that the appellate court erred in ordering it to pay the Province and then seek reimbursement from Associated Bank, suggesting that Associated Bank should have paid the Province directly.

  • Associated Bank:

    • Associated Bank contended that PNB should bear the loss entirely, arguing that it was the drawee bank's responsibility to verify the genuineness of the payee's endorsement.
    • The bank asserted that it was not negligent and that the guarantee of prior endorsements was a mandatory requirement for clearing checks, which should not impose liability on it.

Court's Decision and Legal Reasoning:

The court ruled that both the Province of Tarlac and PNB were negligent, contributing to the loss incurred from the forged checks. The court emphasized that the checks were properly issued and bore genuine signatures from the drawer, but the endorsements were forged.

  1. Negligence of the Province of Tarlac: The court found that the Province allowed a retired employee to collect checks for nearly three years, which was a significant lapse in due diligence. This negligence contributed to the loss.

  2. Negligence of PNB: The court held that PNB breached its duty by paying checks with forged endorsements, which violated its obligation to charge the account of the drawer only for properly payable items.

  3. Liability Distribution: The court determined that the loss should be shared equally (50%-50%) between the Province of Tarlac and PNB. PNB was entitled to recover from Associated Bank for the amount it paid on the forged checks, as the collecting bank had the duty to verify the genuineness of the endorsements.

  4. Legal Principles Established:

    • The court reiterated that a drawee bank is strictly liable to pay checks only to the order of the payee and cannot debit the drawer's account for checks with forged endorsements.
    • The collecting bank is liable for checks with forged endorsements due to its warranty as an indorser, regardless of its negligence.
    • The court clarified the roles and responsibilities of the drawee and collecting banks in cases involving forged endorsements, establishing a clear liability chain.