BANK OF THE PHILIPPINE ISLANDS, petitioner, vs.

COURT OF APPEALS
and BENJAMIN C. NAPIZA, respondents.

DECISION

YNARES-SANTIAGO, J.:

This is a petition for review on certiorari of the Decision of the Court of Appeals
[1]

in CA-G.R. CV No. 37392 affirming in toto that of the Regional Trial Court of
Makati, Branch 139, which dismissed the complaint filed by petitioner Bank of
[2]

the Philippine Islands against private respondent Benjamin C. Napiza for sum of
money. Sdaad

Facts: Private respondent Benjamin Napiza deposited in his deposited in Foreign Currency
Deposit Unit (FCDU) Savings Account with BPI a dollar check owned by Henry Chan in
which he affixed his signature at the dorsal side thereof. For this purpose, Napiza gave Chan a
signed blank withdrawal slip. However, Gayon Jr. got hold of the withdrawal slip and used it to
withdraw the proceeds of the dollar check, even before the check was cleared and without the
presentation of the bank passbook.

Issues: Whether or not petitioner can hold private respondent liable for the proceeds of the check for
having affixed his signature at the dorsal side as indorser.

On September 3, 1987, Private respondent BENJAMIN C. NAPIZA deposited in

Foreign Currency Deposit Unit (FCDU) Savings Account No. 028-187 which he [3]

maintained in petitioner banks Buendia Avenue Extension Branch, Continental

Bank Managers Check No. 00014757 dated August 17, 1984, payable to "cash"
[4]

in the amount of Two Thousand Five Hundred Dollars ($2,500.00) and duly
endorsed by private respondent on its dorsal side. It appears that the check
[5]

belonged to a certain Henry Chan who went to the office of private respondent
and requested him to deposit the check in his dollar account by way of
accommodation and for the purpose of clearing the same. Private respondent
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 the amount of the check upon private respondents
presentation to the bank of his passbook.

Using the blank withdrawal slip given by private respondent to Chan, on October
23, 1984, one Ruben Gayon, Jr. was able to withdraw the amount of $2,541.67
from FCDU Savings Account No. 028-187. Notably, 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.[6]

On November 20, 1984, petitioner received communication from the Wells Fargo
Bank International of New York that the said check deposited by private
respondent was a counterfeit check because it was "not of the type or style of
[7]

checks issued by Continental Bank International." Consequently, Mr. Ariel

[8]

Reyes, the manager of petitioners Buendia Avenue Extension Branch, instructed

one of its employees, Benjamin D. Napiza IV, who is private respondents son, to
inform his father that the check bounced. Reyes himself sent a telegram to
[9]

private respondent regarding the dishonor of the check. In turn, private

respondents son wrote to Reyes stating that the check had been assigned "for
encashment" to Ramon A. de Guzman and/or Agnes C. de Guzman after it shall
have been cleared upon instruction of Chan. He also said that upon learning of
the dishonor of the check, his father immediately tried to contact Chan but the
latter was out of town.
[10]

Private respondents son undertook to return the amount of $2,500.00 to

petitioner bank. On December 18, 1984, Reyes reminded private respondent of
his sons promise and warned that should he fail to return that amount within
seven (7) days, the matter would be referred to the banks lawyers for
appropriate action to protect the banks interest. This was followed by a letter of
[11]

the banks lawyer dated April 8, 1985 demanding the return of the $2,500.00. [12]

In reply, private respondent wrote petitioners counsel on April 20, 1985 stating
[13]

that he deposited the check "for clearing purposes" only to accommodate Chan.
He added:

"Further, please take notice that said check was deposited on

September 3, 1984 and withdrawn on October 23, 1984, or a total
period of fifty (50) days had elapsed at the time of withdrawal. Also,
it may not be amiss to mention here that I merely signed an authority
to withdraw said deposit subject to its clearing, the reason why the
transaction is not reflected in the passbook of the account. Besides,
I did not receive its proceeds as may be gleaned from the
withdrawal slip under the captioned signature of recipient.

If at all, my obligation on the transaction is moral in nature, which

(sic) I have been and is (sic) still exerting utmost and maximum
efforts to collect from Mr. Henry Chan who is directly liable under the
circumstances. Scsdaad
 xxx......xxx......xxx."

On August 12, 1986, petitioner filed a complaint against private respondent,

praying for the return of the amount of $2,500.00 or the prevailing peso
equivalent plus legal interest from date of demand to date of full payment, a sum
equivalent to 20% of the total amount due as attorney's fees, and litigation
and/or costs of suit.

Private respondent filed his answer, 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. He likewise alleged
that he instructed the party to whom he issued the signed blank withdrawal slip
to return it to him after the bank drafts clearance so that he could lend that party
his passbook for the purpose of withdrawing the amount of $2,500.00. However,
without his knowledge, said party was able to withdraw the amount of $2,541.67
from his dollar savings account through collusion with one of petitioners
employees. Private respondent added that he had "given the Plaintiff fifty one
(51) days with which to clear the bank draft in question." Petitioner should have
disallowed the withdrawal because his passbook was not presented. He claimed
that petitioner had no one to blame except itself "for being grossly negligent;" in
fact, it had allegedly admitted having paid the amount in the check "by mistake"
x x x "if not altogether due to collusion and/or bad faith on the part of (its)
employees." Charging petitioner with "apparent ignorance of routine bank
procedures," by way of counterclaim, private respondent prayed for moral
damages of P100,000.00, exemplary damages of P50,000.00 and attorneys
fees of 30% of whatever amount that would be awarded to him plus an
honorarium of P500.00 per appearance in court.

Private respondent also 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 private respondents
passbook. Thus, private respondent prayed that third party defendant Chan be
made to refund to him the amount withdrawn and to pay attorneys fees of
P5,000.00 plus P300.00 honorarium per appearance.

Petitioner filed a comment on the motion for leave of court to admit the third
party complaint, wherein it asserted that per paragraph 2 of the Rules and
Regulations governing BPI savings accounts, private respondent alone was
liable "for the value of the credit given on account of the draft or check
deposited." It contended that private respondent was estopped from disclaiming
liability because he himself authorized the withdrawal of the amount by signing
the withdrawal slip. Petitioner prayed for the denial of the said motion so as not
to unduly delay the disposition of the main case asserting that private
respondents claim could be ventilated in another case.

Private respondent replied that for the parties to obtain complete relief and to
avoid multiplicity of suits, the motion to admit third party complaint should be
granted. Meanwhile, the trial court issued orders on August 25, 1987 and
October 28, 1987 directing private respondent to actively participate in locating
Chan. After private respondent failed to comply, the trial court, on May 18, 1988,
dismissed the third party complaint without prejudice.

On November 4, 1991, a decision was rendered dismissing the complaint. The

lower court held that petitioner could not hold private respondent liable based on
the checks face value alone. To so hold him liable "would render inutile the
requirement of clearance from the drawee bank before the value of a particular
foreign check or draft can be credited to the account of a depositor making such
deposit." The lower court further held that "it was incumbent upon the petitioner
to credit the value of the check in question to the account of the private
respondent only upon receipt of the notice of final payment and should not have
authorized the withdrawal from the latters account of the value or proceeds of
the check." 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, petitioner should suffer the resultant loss. Supremax

On appeal, the Court of Appeals affirmed the lower courts decision. The
appellate court held that petitioner committed "clear gross negligence" in
allowing Ruben Gayon, Jr. to withdraw the money without presenting private
respondents passbook and, before the check was cleared and in crediting the
amount indicated therein in private respondents account. It stressed that the
mere deposit of a check in private respondents account did not mean that the
check was already private respondents property. The check still had to be
cleared and its proceeds can only be withdrawn upon presentation of a
passbook in accordance with the banks rules and regulations. Furthermore,
petitioners contention that private respondent warranted the checks
genuineness by endorsing it is untenable for it would render useless the
clearance requirement. Likewise, the requirement of presentation of a passbook
to ascertain the propriety of the accounting reflected would be a meaningless
exercise. After all, these requirements are designed to protect the bank from
deception or fraud.

The Court of Appeals cited the case of Roman Catholic Bishop of Malolos, Inc.
v. IAC, where this Court stated that a personal check is not legal tender or
[14]

money, and held that the check deposited in this case must be cleared before its
value could be properly transferred to private respondent's account.
Without filing a motion for the reconsideration of the Court of Appeals Decision,
petitioner filed this petition for review on certiorari, raising the following issues:

1.......WHETHER OR NOT RESPONDENT NAPIZA IS LIABLE

UNDER HIS WARRANTIES AS A GENERAL INDORSER.

2.......WHETHER OR NOT A CONTRACT OF AGENCY WAS

CREATED BETWEEN RESPONDENT NAPIZA AND RUBEN
GAYON.

3.......WHETHER OR NOT PETITIONER WAS GROSSLY

NEGLIGENT IN ALLOWING THE WITHDRAWAL.

Petitioner claims that private respondent, having affixed his signature at the
dorsal side of the check, should be liable for the amount stated therein in
accordance with the following provision of the Negotiable Instruments Law (Act
No. 2031):

"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 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, on the other hand, provides for the following warranties of a person
negotiating an instrument 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. In People v.
[15]

Maniego, this Court described the liabilities of an indorser as follows: Juris

[16]

"Appellants contention that as mere indorser, she may not be liable

on account of the dishonor of the checks indorsed by her, is likewise
untenable. Under the law, the holder or last indorsee of a negotiable
 instrument has the right to enforce payment of the instrument for the
full amount thereof against all parties liable thereon. Among the
parties liable thereon is an indorser of the instrument, i.e., a person
placing his signature upon an instrument otherwise than as a maker,
drawer or acceptor * * unless he clearly indicated by appropriate
words his intention to be bound in some other capacity. Such an
indorser who indorses without qualification, inter alia engages that
on due presentment, * * (the instrument) 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 any
subsequent indorser who may be compelled to pay it. Maniego may
also be deemed an accommodation party in the light of the facts,
i.e., a person who has signed the instrument as maker, drawer,
acceptor, or indorser, without receiving value therefor, and for the
purpose of lending his name to some other person. As such, she is
under the law liable on the instrument to a holder for value,
notwithstanding such holder at the time of taking the instrument
knew * * (her) to be only an accommodation party, although she has
the right, after paying the holder, to obtain reimbursement from the
party accommodated, since the relation between them is in effect
that of principal and surety, the accommodation party being the
surety."

It is thus clear that ordinarily private respondent may be held liable as an

indorser of the check or even as an accommodation party. However, to hold
[17]

private respondent 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.

Petitioner asserts that by signing the withdrawal slip, private respondent

"presented the opportunity for the withdrawal of the amount in question."
Petitioner relied "on the genuine signature on the withdrawal slip, the personality
of private respondents son and the lapse of more than fifty (50) days from date
of deposit of the Continental Bank draft, without the same being returned
yet." We hold, however, that the propriety of the withdrawal should be gauged
[18]

by compliance with the rules thereon that both petitioner bank and its depositors
are duty-bound to observe.

In the passbook that petitioner issued to private respondent, the following rules
on withdrawal of deposits appear:
 "4.......Withdrawals must be made by the depositor personally but in
some exceptional circumstances, the Bank may allow withdrawal by
another upon the depositors written authority duly authenticated;
and neither a deposit nor a withdrawal will be permitted except upon
the presentation of the depositors savings passbook, in which the
amount deposited withdrawn shall be entered only by the Bank.

5.......Withdrawals may be made by draft, mail or telegraphic transfer

in currency of the account at the request of the depositor in writing
on the withdrawal slip or by authenticated cable. Such request must
indicate the name of the payee/s, amount and the place where the
funds are to be paid. Any stamp, transmission and other charges
related to such withdrawals shall be for the account of the depositor
and shall be paid by him/her upon demand. Withdrawals may also
be made in the form of travellers checks and in pesos. Withdrawals
in the form of notes/bills are allowed subject however, to their
(availability).

6.......Deposits shall not be subject to withdrawal by check, and may

be withdrawn only in the manner above provided, upon presentation
of the depositors savings passbook and with the withdrawal form
supplied by the Bank at the counter." Scjuris
[19]

Under these rules, to be able to withdraw from the savings account deposit
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 (b) the depositors passbook. Private respondent
admits that he signed a blank withdrawal slip ostensibly in violation of Rule No. 6
requiring that the request for withdrawal must name the payee, the amount to be
withdrawn and the place where such withdrawal should be made. That the
withdrawal slip was in fact a blank one with only private respondents two
signatures affixed on the proper spaces is buttressed by petitioners allegation in
the instant petition that had private respondent indicated therein the person
authorized to receive the money, then Ruben Gayon, Jr. could not have
withdrawn any amount. Petitioner contends that "(i)n failing to do so (i.e., naming
his authorized agent), he practically authorized any possessor thereof to write
any amount and to collect the same." [20]

Such contention would have been valid if not for the fact that the withdrawal slip
itself indicates a special instruction that the amount is payable to "Ramon A. de
Guzman &/or Agnes C. de Guzman." Such being the case, petitioners personnel
should have been duly warned that Gayon, who was also employed in
petitioners Buendia Ave. Extension branch, was not the proper payee of the
[21]
proceeds of the check. Otherwise, either Ramon or Agnes de Guzman should
have issued another authority to Gayon for such withdrawal. Of course, at the
dorsal side of the withdrawal slip is an "authority to withdraw" naming Gayon the
person who can withdraw the amount indicated in the check. Private respondent
does not deny having signed such authority. However, considering petitioners
clear admission that the withdrawal slip was a blank one except for private
respondents signature, the unavoidable conclusion is that the typewritten name
of "Ruben C. Gayon, Jr." was intercalated and thereafter it was signed by Gayon
or whoever was allowed by petitioner to withdraw the amount. Under these facts,
there could not have been a principal-agent relationship between private
respondent and Gayon so as to render the former liable for the amount
withdrawn.

Moreover, the withdrawal slip contains a boxed warning that states: "This receipt
must be signed and presented with the corresponding foreign currency savings
passbook by the depositor in person. For withdrawals thru a representative,
depositor should accomplish the authority at the back." The requirement of
presentation of the passbook when withdrawing an amount cannot be given
mere lip service even though the person making the withdrawal is authorized by
the depositor to do so. This is clear from Rule No. 6 set out by petitioner so that,
for the protection of the banks interest and as a reminder to the depositor, the
withdrawal shall be entered in the depositors passbook. The fact that private
respondents passbook was not presented during the withdrawal is evidenced by
the entries therein showing that the last transaction that he made with the bank
was on September 3, 1984, the date he deposited the controversial check in the
amount of $2,500.00. [22]

In allowing the withdrawal, petitioner likewise overlooked another rule that is

printed in the passbook. Thus:

"2.......All deposits will be received as current funds and will be

repaid in the same manner; provided, however, that deposits
of drafts, checks, money orders, etc. will be accepted as subject to
collection only and credited to the account only upon receipt of the
notice of final payment. Collection charges by the Banks foreign
correspondent in effecting such collection shall be for the account of
the depositor. If the account has sufficient balance, the collection
shall be debited by the Bank against the account. If, for any reason,
the proceeds of the deposited checks, drafts, money orders, etc.,
cannot be collected or if the Bank is required to return such
proceeds, the provisional entry therefor made by the Bank in the
savings passbook and its records shall be deemed automatically
cancelled regardless of the time that has elapsed, and whether or
 not the defective items can be returned to the depositor; and the
Bank is hereby authorized to execute immediately the necessary
corrections, amendments or changes in its record, as well as on the
savings passbook at the first opportunity to reflect such
cancellation." (Italics and underlining supplied.) Jurissc

As correctly held by the Court of Appeals, in depositing the check in his name,
private respondent did not become the outright owner of the amount stated
therein. Under the above rule, by depositing the check with petitioner, private
respondent was, in a way, merely designating petitioner as the collecting bank.
This is in consonance with the rule that a negotiable instrument, such as a
check, whether a managers check or ordinary check, is not legal tender. As [23]

such, after receiving the deposit, under its own rules, petitioner shall credit the
amount in private respondents account or infuse value thereon only after the
drawee bank shall have paid the amount of the check or the check has been
cleared for deposit. Again, this is in accordance with ordinary banking practices
and with this Courts pronouncement that "the collecting bank or last endorser
generally suffers the loss because it has the duty to ascertain the genuineness
of all prior endorsements considering that the act of presenting the check for
payment to the drawee is an assertion that the party making the presentment
has done its duty to ascertain the genuineness of the endorsements." The rule
[24]

finds more meaning in this case where the check involved is drawn on a foreign
bank and therefore collection is more difficult than when the drawee bank is a
local one even though the check in question is a managers check. Misjuris
[25]

In Banco Atlantico v. Auditor General, Banco Atlantico, a commercial bank in

[26]

Madrid, Spain, paid the amounts represented in three (3) checks to Virginia
Boncan, the finance officer of the Philippine Embassy in Madrid. The bank did so
without previously clearing the checks with the drawee bank, the Philippine
National Bank in New York, on account of the "special treatment" that Boncan
received from the personnel of Banco Atlanticos foreign department. The Court
held that the encashment of the checks without prior clearance is "contrary to
normal or ordinary banking practice specially so where the drawee bank is a
foreign bank and the amounts involved were large." Accordingly, the Court
approved the Auditor Generals denial of Banco Atlanticos claim for payment of
the value of the checks that was withdrawn by Boncan.

Said ruling brings to light the fact that the banking business is affected with
public interest. By the nature of its functions, a bank is under obligation to treat
the accounts of its depositors "with meticulous care, always having in mind the
fiduciary nature of their relationship." As such, in dealing with its depositors, a
[27]

bank should exercise its functions not only with the diligence of a good father of
a family but it should do so with the highest degree of care. [28]
In the case at bar, petitioner, in allowing the withdrawal of private respondents
deposit, failed to exercise the diligence of a good father of a family. In total
disregard of its own rules, petitioners personnel negligently handled private
respondents account to petitioners detriment. As this Court once said on this
matter:

"Negligence is the omission to do something which a reasonable

man, guided by those considerations which ordinarily regulate the
conduct of human affairs, would do, or the doing of something which
a prudent and reasonable man would do. The seventy-eight (78)-
year-old, yet still relevant, case of Picart v. Smith, provides the test
by which to determine the existence of negligence in a particular
case which may be stated as follows: Did the defendant in doing the
alleged negligent act use that reasonable care and caution which an
ordinarily prudent person would have used in the same situation? If
not, then he is guilty of negligence. The law here in effect adopts the
standard supposed to be supplied by the imaginary conduct of the
discreet pater-familias of the Roman law. The existence of
negligence in a given case is not determined by reference to the
personal judgment of the actor in the situation before him. The law
considers what would be reckless, blameworthy, or negligent in the
man of ordinary intelligence and prudence and determines liability
by that."
[29]

Petitioner violated its own rules by allowing the withdrawal of an amount that is
definitely over and above the aggregate amount of private respondents dollar
deposits that had yet to be cleared. The banks ledger on private respondents
account shows that before he deposited $2,500.00, private respondent had a
balance of only $750.00. Upon private respondents deposit of $2,500.00 on
[30]

September 3, 1984, that amount was credited in his ledger as a deposit resulting
in the corresponding total balance of $3,250.00. On September 10, 1984, the
[31]

amount of $600.00 and the additional charges of $10.00 were indicated therein
as withdrawn thereby leaving a balance of $2,640.00. On September 30, 1984,
an interest of $11.59 was reflected in the ledger and on October 23, 1984, the
amount of $2,541.67 was entered as withdrawn with a balance of $109.92. On [32]

November 19, 1984 the word "hold" was written beside the balance of
$109.92. That must have been the time when Reyes, petitioners branch
[33]

manager, was informed unofficially of the fact that the check deposited was a
counterfeit, but petitioners Buendia Ave. Extension Branch received a copy of
the communication thereon from Wells Fargo Bank International in New York the
following day, November 20, 1984. According to Reyes, Wells Fargo Bank
[34]

International handled the clearing of checks drawn against U.S. banks that were
deposited with petitioner. Jjlex[35]
From these facts on record, it is at once apparent that petitioners personnel
allowed the withdrawal of an amount bigger than the original deposit of $750.00
and the value of the check deposited in the amount of $2,500.00 although they
had not yet received notice from the clearing bank in the United States on
whether or not the check was funded. Reyes contention that after the lapse of
the 35-day period the amount of a deposited check could be withdrawn even in
the absence of a clearance thereon, otherwise it could take a long time before a
depositor could make a withdrawal, is untenable. Said practice amounts to a
[36]

disregard of the clearance requirement of the banking system.

While it is true that private respondents 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 petitioners personnel was the proximate
cause of the loss that petitioner sustained. Proximate cause, which is
determined by a mixed consideration of logic, common sense, policy and
precedent, 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." The proximate cause of the withdrawal and
[37]

eventual loss of the amount of $2,500.00 on petitioners part was its personnels
negligence in allowing such withdrawal in disregard of its own rules and the
clearing requirement in the banking system. In so doing, petitioner assumed the
risk of incurring a loss on account of a forged or counterfeit foreign check and
hence, it should suffer the resulting damage.

WHEREFORE, the petition for review on certiorari is DENIED. The Decision of

the Court of Appeals in CA-G.R. CV No. 37392 is AFFIRMED.

SO ORDERED. Newmiso

Davide, Jr., C.J., (Chairman), Puno, Kapunan, and Pardo, JJ., concur.