Bank of America vs.

Associated Citizens Bank

FACTS:

BA-Finance Corporation granted Miller Offset Press, Inc. a credit line facility through
which the latter could assign or discount its trade receivables with the former. The
representatives of Miller (Uy Kiat Chung, Ching Uy Seng, and Uy ChungGuan Seng)
executed a Continuing Suretyship Agreement with BA-Finance whereby they jointly and
severally guaranteed the full and prompt payment of any and all indebtedness which
Miller may incur with BA-Finance. Miller discounted and assigned several trade
receivables to BA-Finance by executing Deeds of Assignment in favor of the latter and
in consideration thereof, BA-Finance issued four checks payable to the order of Miller
with the notation "For Payee’s Account Only” and were drawn against Bank of
America. The four checks were deposited by Ching Uy Seng in Associated Citizens Bank
with his joint account with Uy Chung Seng and the bank stamped the checks and
guaranteed all prior endorsements and/or lack of endorsements and sent them through
clearing. Later, Bank of America as drawee bank honored the checks and paid the
proceeds to Associated Bank as the collecting bank. When Miller failed to deliver to BA-
Finance the proceeds of the assigned trade receivables, BA-Finance filed a collection
suit against Miller and impleaded the three representatives of the latter. Miller, Uy Kiat
Chung, and Uy Chung Guan Seng filed a joint answer with cross-claim against Ching Uy
Seng, wherein they denied that (1) they received the amount covered by the four Bank
of America checks, and (2) they authorized their co-defendant Ching Uy Seng to
transact business with BA-Finance on behalf of Miller. Uy Kiat Chung and Uy Chung
Guan Seng also denied having signed the Continuing Suretyship Agreement with BA-
Finance. BA-Finance filed an Amended Complaint impleading Bank of America as
additional defendant for allegedly allowing encashment and collection of the checks
by person or persons other than the payee named thereon. Ching Uy Seng did not
File his Answer to the complaint. Bank of America filed a third party complaint against
Associated Bank. In its answer to the third party complaint, Associated Bank admitted
having received the four checks for deposit in the joint account of Ching Uy Seng and
Uy Chung GuanSeng, but alleged that Ching Uy Seng, being one of the corporate
officers of Miller, was duly authorized to act for and on behalf of Miller. RTC rendered
judgment ordering Bank of America to pay BA-Finance the value of the four checks.
CAaffirmed the trial court’s ruling with modification that Associated Bank
shouldreimburse Bank of America.

ISSUES:
Whether or not Bank of America is liable to pay BA-Finance and Whether or not
Associated Bank should reimburse Bankof America the amount of four checks?

HELD:

Yes. The bank on which a check is drawn, known as the drawee bank, is under strict
liability, based on the contract between the bank and its customer(drawer), to pay the
check only to the payee or the payee’s order. The drawer’s instructions are reflected
on the face and by the terms of the check. When the drawee bank pays a person
other than thepayee named on the check, it does not comply with the terms of the
check and violates its duty to charge the drawer’s account only for properly payable
items. On the part of Associated Bank, the law imposes a duty of diligence on the
collecting bank to scrutinize checks deposited with it for the purpose of determining
their genuineness and regularity. The collecting bank being primarily engaged in
banking holds itself out to the public as the expert and the law holds it to a high
standard of conduct. In presenting the checks for clearing and for payment, the
defendant [collecting bank] made an express guarantee on the validity of "all prior
endorsements." Thus, stamped at the back of the checks are the defendant’s clear
warranties. As the warranty has proven to be false and inaccurate, Associated Bank is
liable for any damage arising out of the falsity of its representation

Negotiable Instruments Case Digest: BPI V.

FACTS:
 September 3, 1987: Bejanmin Napiza deposited in Foreign Currency Deposit Unit
(FCDU) Savings Account which he maintained in BPI a Continental Bank Manager's
Check dated August 17, 1984, payable to "cash" $2,500.00

 check belonged to Henry who went to the office of Napiza and requested him to
deposit the check in his dollar account by way of accommodation and for the
purpose of clearing the same.

 Napiza acceded, and agreed to deliver to Chan a signed blank withdrawal slip, with
the understanding that as soon as the check is cleared, both of them would go to
the bank to withdraw

 October 23, 1984: Using the blank withdrawal slip given by Napiza to Chan, Ruben
Gayon, Jr. was able to withdraw

 the withdrawal slip shows that the amount was payable to Ramon A. de Guzman
and Agnes C. de Guzman and was duly initialed by the branch assistant manager,
Teresita Lindo

 November 20, 1984: BPI received communication from the Wells Fargo Bank
International of New York that check deposited by Napiza was a counterfeit
 check because it was "not of the type or style of checks issued by Continental Bank
International."

 Mr. Ariel Reyes, manager of BPI, instructed one of its employees, Benjamin D.
Napiza IV, who is Napiza's son, to inform his father that the check bounced.

 Reyes himself sent a telegram to Napiza regarding the dishonor of the check

 Napiza's son told Reyes that:

 check been assigned "for encashment" to Ramon A. de Guzman and/or Agnes C. de

 his father immediately tried to contact Chan but Chan was out of town

 Napiza's son undertook to return the amount of $2,500.00 to BPI

 August 12, 1986: BPI filed a complaint against Napiza for the return of $2,500.00 or
the prevailing peso equivalent plus legal interest, attorney's fees, and litigation
and/or costs ofSUIT

 Napiza:

 admitting that he indeed signed a "blank" withdrawal slip with the understanding
that the amount deposited would be withdrawn only after the check in question has
been cleared.

 However, without his knowledge, it was withdrawn through collusion with one of
BPI's employees.

 BPI aslo filed a motion for admission of a third party complaint against Chan. He
alleged that "thru strategem and/or manipulation," Chan was able to withdraw the
amount of $2,500.00 even without Napiza's passbook.

 November 4, 1991: Lower Court dismissed the complaint.

 Having admitted that it committed a "mistake" in not waiting for the clearance of
the check before authorizing the withdrawal of its value or proceeds, BPI should
suffer the resultant loss.
 CA: Affirmed the lower courts decision

 BPI committed "clears gross negligence" in allowing Ruben Gayon, Jr. to withdraw
the money without presenting BPI's passbook and, before the check was cleared
and in crediting the amount indicated therein in Napiza's account.

 BPI claims that Napiza, having affixed his signature at the dorsal side of the check,
should be liable in accordance to Sec. 66 of the NegotiableINSTRUMENT Law

Sec. 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
precedingSECTION ; 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.

Sec. 65, on the other hand, provides for the following warranties of a person
negotiating anINSTRUMENT by delivery or by qualified indorsement: (a) that the
instrument is genuine and in all respects what it purports to be; (b) that he has a good
title to it, and (c) that all prior parties had capacity to contract.

ISSUE: W/N Napiza can be held liable as an indorser or accommodation party

HELD: NO.
 ordinarily Napiza may be held liable as an indorser of the check or even as an
accommodation party

 However, to hold Napiza liable for the amount of the check he deposited by the
strict application of the law and without considering the attending circumstances in
the case would result in an injustice and in the erosion of the public trust in the
banking system.
 The interest of justice thus demands looking into the events that led to the
encashment of the check.

 under the Philippine foreign currency deposit system, two requisites must be
presented to petitioner bank by the person withdrawing an amount:

 (a) a duly filled-up withdrawal slip, and

 Napiza signed a blank deposit slip

 BUT withdrawal slip itself indicates a special instruction that the amount is payable
to "Ramon A. de Guzman &/or Agnes C. de Guzman."

 (b) the depositor's passbook

 In depositing the check in his name, Napiza did not become the outright owner of
the amount stated therein. By depositing the check with BPI, he was, in a way,
merely designating BPI as the collecting bank.

 This is in consonance with the rule that a negotiableINSTRUMENT , such as a check,

 Negligence is the omission to do something which a reasonable man, guided by

 While it is true that Napiza's having signed a blank withdrawal slip set in motion the
events that resulted in the withdrawal and encashment of the counterfeit check, the
negligence of BPI's personnel was the proximate cause of the loss that petitioner
sustained.

 Proximate cause, which is determined by a mixed consideration of logic, common

 The proximate cause = disregard of its own rules and the clearing requirement in
the banking system