Insular Drug Co. v. Philippine National Bank
REITERATIONFacts
The Antecedents: U.E. Foerster, a salesman and collector for Insular Drug Co., Inc. (Insular Drug), was instructed to deposit checks received for the company into its account at the Chartered Bank of India, Australia and China. Instead, Foerster deposited checks payable to Insular Drug into his personal account at the Philippine National Bank (PNB) in Iloilo. These checks were indorsed by Foerster, his wife, and his clerk. PNB, Iloilo Branch, guaranteed payment. Subsequently, Foerster and his wife withdrew the funds. Upon discovery of anomalies, Foerster committed suicide. Insular Drug claimed it never received the face value of 132 checks totaling P18,285.92. Procedural History: The Court of First Instance of Manila rendered a judgment ordering PNB to pay Insular Drug the sum of P18,285.92, with legal interest and costs. The Petition: PNB appealed the judgment.
Issue(s)
Whether the bank is liable for the amounts of the checks improperly cashed and deposited into the personal account of the company's agent. Whether Foerster had implied authority to indorse checks made out in the name of Insular Drug Co., Inc. Whether the bank acted in good faith, thereby relieving it from responsibility.
Ruling
The judgment of the trial court is affirmed. The Philippine National Bank is ordered to pay Insular Drug Co., Inc. the sum of P18,285.92 with legal interest and costs.
Ratio Decidendi
On the liability of the bank for improperly cashed checks: The Court held that PNB made itself responsible to Insular Drug for the amounts represented by the checks. The bank could tell from the checks themselves that the money belonged to Insular Drug, not to Foerster, his wife, or his clerk. By crediting these checks to Foerster's personal account and allowing withdrawals without proper authority from Insular Drug, PNB assumed liability. The bank could only escape this responsibility by proving that the money, after withdrawal, ultimately reached Insular Drug and that the company suffered no loss, which it failed to do. On the implied authority of Foerster to indorse checks: The Court found that the argument that Foerster had implied authority to indorse checks made out in the name of Insular Drug Co., Inc. had even less force. The bank not only permitted Foerster to indorse checks and deposit them into his personal account but also allowed his wife and clerk to indorse checks. The right of an agent to indorse commercial paper is a significant power that will not be lightly inferred. A salesman with authority to collect money does not possess the implied authority to indorse checks received in payment. Any person taking checks made payable to a corporation, which can only act through an agent, does so at their peril and must bear the consequences if the agent indorsing the check lacks authority. On the bank's good faith: The Court stated that the fact that the bank acted in good faith does not relieve it from responsibility. Furthermore, no proof was adduced to indicate that Foerster's wife and clerk had the right to indorse the checks, even admitting that Foerster had the right to do so. The checks drawn on the Bank of Philippine Islands were not differentiated from those drawn on the Philippine National Bank due to the indorsement by the latter.
Main Doctrine
A bank is responsible to a corporation for amounts represented by checks made out in the corporation's name when the bank credits these checks to the personal account of the corporation's agent and permits withdrawals without proper authority from the corporation. The bank may only relieve itself from responsibility by proving that the funds, after withdrawal, ultimately reached the corporation, thus suffering no loss.