Traders Royal Bank v. Radio Philippines Network, Inc.
REITERATIONFacts
The Antecedents: Radio Philippines Network, Inc. (RPN), Intercontinental Broadcasting Corporation (IBC), and Banahaw Broadcasting Corporation (BBC) were assessed tax liabilities by the Bureau of Internal Revenue (BIR) for the taxable years 1978 to 1983. To settle these obligations, the networks purchased three manager's checks from Traders Royal Bank (TRB) totaling P9,790,716.87, intended for payment to the BIR. However, their comptroller, Mrs. Lourdes C. Vera, failed to deliver these checks to the BIR. Subsequently, the networks discovered that the checks were presented for payment by unknown individuals to Security Bank and Trust Company (SBTC), which allegedly forged the payee's endorsement. Due to the non-payment of taxes, the BIR issued warrants of levy, distraint, and garnishment, compelling the networks to pay P18,962,225.25 in a compromise settlement. The networks then demanded reimbursement from TRB and SBTC, which was refused, leading to the filing of a lawsuit. Procedural History: The trial court ruled in favor of the plaintiff networks, holding TRB liable for the full amount of the checks as actual damages, plus interest, and ordering SBTC to reimburse TRB. Both defendants, TRB and SBTC, appealed the decision to the Court of Appeals. The appellate court modified the trial court's decision, absolving SBTC of any liability and holding TRB solely responsible for the damages and costs awarded to the respondent networks. The Petition: Petitioner Traders Royal Bank (TRB) seeks review of the Court of Appeals' decision through a petition for certiorari under Rule 45 of the Rules of Civil Procedure. TRB assigns as errors the appellate court's alleged oversight of facts indicating negligence by RPN, IBC, and BBC, which should bar their recovery; its plain error in relieving SBTC of liability by overturning the trial court's finding that SBTC endorsed the checks; and its misapplication of law in affirming the award of exemplary damages. Respondents RPN, IBC, and BBC argue that TRB's petition raises questions of fact, which are generally not reviewable under Rule 45, and that the factual findings of the lower courts are binding. Respondent SBTC denies liability, asserting it had no participation in the negotiation of the checks and that the routing symbols on the checks do not constitute proof of acceptance or presentment for clearing.
Issue(s)
Whether the negligence of RPN, IBC, and BBC bars them from recovering from TRB. Whether SBTC, as the collecting bank, should be held liable instead of TRB. Whether TRB should be held solely liable for paying the manager's checks to persons other than the payee (BIR) due to forged endorsements. Whether exemplary damages are warranted. Whether the award of attorney's fees is reasonable.
Ruling
The Supreme Court modified the Court of Appeals' decision by deleting the award of exemplary damages and reducing the attorney's fees to P100,000.00. In all other respects, the CA's decision holding TRB solely liable was affirmed.
Ratio Decidendi
On the alleged negligence of RPN, IBC, and BBC: The Court held that TRB could not exculpate itself from liability by claiming the respondent networks were negligent. The primary duty to ensure proper endorsement and payment rested with TRB as the drawee bank. The networks fulfilled their obligation by purchasing the manager's checks payable to the BIR. The subsequent loss was due to TRB's failure to exercise the required diligence in verifying the endorsements before cashing the checks. Therefore, the networks' alleged negligence did not bar them from recovering from TRB. On the liability of SBTC as collecting bank: The Court affirmed the CA's finding that SBTC should be absolved from liability. For SBTC to be held liable as a collecting bank and indorser, it must be established that the disputed checks actually passed through its hands and were presented for clearing. The CA found no evidence that the checks bore SBTC's guarantee endorsement or that they were included in SBTC's clearing documents submitted to the Philippine Clearing House Corporation (PCHC). The routing symbols stamped on the checks belonged to the Philippine National Bank, Buendia Branch, not SBTC. Moreover, SBTC's practice of stamping checks with "non-negotiable" was not observed on the disputed checks, and the aggregate amounts were not reflected in SBTC's clearing documents. These circumstances created serious doubt as to whether the checks ever passed through SBTC, thus absolving it from liability. On the liability of TRB for paying checks with forged endorsements: The Court affirmed the ruling that TRB is solely liable. When a check is drawn payable to the order of one person and presented for payment by another, the drawee bank has the primary duty to know that the check was duly indorsed by the original payee. TRB failed in this duty by paying the manager's checks, totaling P9,790,716.87, to unknown persons who had forged the endorsement of the payee, the BIR. This failure constitutes negligence, and TRB must suffer the consequences of its disregard of established banking rules and procedures. The Court reiterated the principle that if a bank pays a forged check, it is considered as paying out of its own funds and cannot charge the amount to the depositor's account; its only remedy is against the person to whom it paid the money. Furthermore, one of the checks was crossed, which should have alerted TRB to inquire about the indorser's title and the nature of possession, as a crossed check can only be deposited and negotiated once to a bank account holder, serving as a warning that it was issued for a definite purpose. On exemplary damages: The Court agreed with TRB that it should not be made to pay exemplary damages. While TRB was found negligent, its wrongful act was not done in bad faith, nor did it act in a wanton, fraudulent, reckless, or malevolent manner. Exemplary damages are awarded only when the defendant acts in a wanton, fraudulent, reckless, or oppressive manner, which was not sufficiently proven in this case. On attorney's fees: The Court found the award of 25% of P10 million as attorney's fees to be manifestly exorbitant. Considering the nature and extent of the services rendered by the respondent networks' counsel, the Court deemed it appropriate to reduce the award to P100,000.00.
Main Doctrine
A drawee bank that pays a manager's check to a third party who forged the payee's endorsement, despite the check being payable to a specific entity (the BIR), acts negligently and must bear the loss, as it failed to exercise the diligence required of a banking institution. The bank cannot charge the amount paid to the account of the depositor, and its recourse is only against the party to whom it paid the money.